Management accounting is a field of accounting that analyzes and provides cost information to the internal management for the

purposes of planning, controlling and decision making. Management accounting refers to accounting information developed for managers within an organization. CIMA (Chartered Institute of Management Accountants) defines Management accounting as Management Accounting is the process of identification, measurement, accumulation, analysis, preparation, interpretation, and communication of information that used by management to plan, evaluate, and control within an entity and to assure appropriate use of an accountability for its resources. This is the phase of accounting concerned with providing information to managers for use in planning and controlling operations and in decision making. Managerial accounting is concerned with providing information to managers i.e. people inside an organization who direct and control its operations. In contrast, financial accounting is concerned with providing information to stockholders, creditors, and others who are outside an organization. Managerial accounting provides the essential data with which organizations are actually run. Financial accounting provides the scorecard by which a companys past performance is judged. Because it is manager oriented, any study of managerial accounting must be preceded by some understanding of what managers do, the information managers need, and the general business environment.

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Financial Accounting
A financial accounting system produces External vs. information that is used by parties Internal external to the organization, such as shareholders, bank and creditors.
Segment reporting

Management Accounting
A management accounting system produces information that is used within an organization, by managers and employees. May pertain to smaller business units or individual departments, in addition to the entire organization. Management accounting focuses on future & present. No specific format is designed for

Pertains to the entire organization or materially significant business units. Financial accounting focuses on history. Financial accounts are supposed to be in

Focus Format

Financial Accounting
accordance with a specific format, so that financial accounts of different organizations can be easily compared. (Formal recordkeeping) Financial accounting helps in making Planning and investment decisions, and in credit control rating. Quantitative and monetary Financial accounting reports are primarily used by external users, such as shareholders, bank and creditors. Well-defined - annually, semi-annually, quarterly. (Verifiable) Preparing financial accounting reports are mandatory especially for limited companies.

Management Accounting
management accounting systems. (Formal and informal recordkeeping)

Management accounting helpsmanagement to record, plan and control activities to aid decision-making process. Quantitative and qualitative; Monetary and non-monetary Management accounting reports are exclusively used by internal users viz. managers and employees. As needed - daily, weekly, monthly.

Information

Users

Reporting frequency and duration

Optional?

There are no legal requirements to prepare reports on management accounting. The main objectives of Management Accounting are to help management by providing information that used by management to plan, evaluate, and control. Drafted according to management suitability. Cost accounts are not preserved under Management Accounting. The necessary data from financial statements and cost ledgers are analyzed.

The main objectives of financial accounting are :i) to disclose the end Objectives results of the business, and ii) to depict the financial condition of the business on a particular date.
Legal/rules

Drafted according to GAAP - General Accepted Accounting Procedure. Follows a full process of recording, classifying, and summarizing for the purpose of analysis and interpretation of the financial information.

Accounting process

Similarities between Job Order and Process Costing System:

Learning Objectives of this article:

1.

What are the differences and similarities in process costing and job order costing procedures.

Similarities between job order and process costing systems can be summarized as follows.

1. 2. 3.

Both systems have the same basic purposes-to assign material, labor, and overhead costs to products and to provide mechanism for computing unit product cost. Both systems use the same basic manufacturing accountants, including manufacturing overhead, Raw materials, Work in process, and Finished Good. The flow of costs through the manufacturing accounts is basically the same in both systems.

Difference Between Job Order and Process Costing:

The differences between job order costing and process costing arise from two factors. The first is that the flow of units in a process costing system is more or less continuous, and the second is that these units are indistinguishable from one another. Under process costing it makes no sense to try to identify materials, labor, and overhead costs with a particular order from a customer ( as we do with job order costing ), since each order is just one of many that are filled from a continuous flow of virtually identical units from the production line. Under process costing, we accumulate costs by department rather than by order, assign these costs uniformly to all units that pass through the department during a period. A further difference between the two costing systems is that the job cost sheet is not used in process costing, since the focal point of process costing is on departments. Instead of using job cost sheet a production report is prepared for each department in which work is done on products. The production report serves several functions. It provides a summary of number of units moving through a department during a period, and it also provides a computation of unit costs. In addition it shows what costs were charged to the department and what disposition was made on these costs. The department production report is a key document in a process costing system.

These differences are summarized below: Job Order Costing Process Costing

1. Many different jobs are worked on

2. 3.

during each period, with each job having different production requirements. Costs are accumulated by individual job. Job cost sheet is the key document controlling the accumulation of costs by a job.

1. A single product is produced either on 2. 3. 4.

4. Unit costs are computed by job on the

job cost sheet.

continuous basis or for long periods. All units of product are identical. Costs are accumulated by departments. The department production report is the key document showing the accumulation and disposition of costs. Unit costs are computed by department on the department production report.