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To avoid a financial mess, you must understand the difference between financial and management accounting

by , 19 June 2014
Your business finances are as complex as a spider's web. Sadly though, if you've confused the roles of your accounts, your finances may be just as full of holes.

And when your books are disorganised, you could be heading for a financial disaster.

You can avoid this though. You just need to know the difference between your books and accounts.

To help you do this, today we're revealing the difference between financial and management accounting...

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The difference between financial and management accounting explained

There are lots of differences between financial accounting and management accounting, but to get you started, we're revealing the three biggest differences. 
 
These are: Who uses them, their main purpose and their focus. 
 
So let's start with the users…
 
1. Users
 
- Financial accounts: 
Current shareholders;
Prospective share holders;
Lenders;
Clients;
Employees;
Tax authorities;
Government regularities;
Government regulators; and
Suppliers.
 
- Management accounts:
Management; and
Internal auditors and risk committees.
 
2. Purpose
 
- Financial accounts:
It helps outside users make economic decisions; and
Acts as a stewardship of management and makes them accountable to shareholders.
 
- Management accounts:
Use for internal decisions and performance management.
 
3. Focus
 
- Financial accounts:
The focus is on the company's financial position; and
Past transaction. 
 
- Management accounts:
The focus is on current and forecasted earnings; 
Future transactions; and
Decision making data.
 
If you keep these differences in mind, you'll be able to streamline your accounts. This will make all of them easier to use.
 
With clearer accounts comes better financial management. So ensure your different accounts are doing their jobs and your company will constantly benefit.
 
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