Explain the difference between financial and management accounting, the fundamentals of management accounting. Explain how costs are classified us...

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There are two different branches of accounting which are managerial accounting and financial accounting. First the managerial accounting, it the department which issues reports for internal managers. These reports are used for planning, forecasting and decision making. Financial accounting is the department that issues reports for shareholders or any organisation outside the company. These reports show how the company was performing the previous years. The table below will clarify the differences: Description Financial accounting Managerial accounting Users Financial accounting shows how the business is performing to people who are not working inside the organisation. Managerial accounting produces reports to managers and employees. Reports Reports issued to shows the whole organisation performance to stockholders, creditors or other organisations. Reports can be issued for the whole company, group of departments or single department. Used information time frame Information usually collected from the history of the company. Usually present information is used. Aim To figure out how business is doing financially and to calculate profit/loss annually Information usually used to forecast for the future, present problem solving. Information also used to evaluate, control and decision making. Format Financial accounting reports have to be written in formal language and formal record books as it might be compared with other organisations No special format required. Planning Financial records helps current, potential investors to make decision. It also helps in credit rating. Helps managers to forecast for each department and it helps in internal decision making, controlling and plan. Type of information Information usually quantitative... ... middle of paper ... ...stalled in a car or wood used to make a table. The second division is direct labour, how much the workforce has the company. Labour can be calculated individually to show the exact cost. For example, how many hours workers have to work to produce a table. The third type is Factory overheads; it refers to the indirect expenses involved in a production process. It has to be added to direct labour and direct materials to know exactly how much the production cost. An example of factory overhead could be factory’s electricity bill. These are not the only costs classifications; there are loads more for example classification of costs according to relevance. In conclusion accountants classified costs to control it. It is easier to know how much exactly production of one unit has cost the company. it has many aspects to make it easier for companies to decrease their costs.

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