Financial Accounting and Management Accounting - An Overview

This article deals with a brief overview of some of the differences between financial accounting and management accounting systems. But at first let us understand what accounting is.

What is accounting? Accounting may be defined as a system of collecting, summerising, analysing, and reporting in financial terms, information about a business organisation. The business accounting as understood today, comprises of, financial accounting, and management accounting. These two parts of the business system have something in common and there are differences as well.

As a part of the accounting system of business enterprises, these two differ from each other in many respects.

Financial Accounting and Management Accounting - An Overview

The first difference is in its structure or formats of its presentation of information. Financial accounting has a single unified structure of presentation, which means, that the information relating to enterprise business system is presented more or less on a uniform basis. The end products of financial accounting are its three basic financial statements, and these are:

- The balance sheet.

- The profit and loss account/income statement.

- The statement of changes in financial position.

The balance sheet presents the financial position of an organisation at any point of time. The profit and loss statement would contain the organisation's financial performance over a specified period of time, which is usually one year. The inflow and outflow of financial resources of an organisation during a period of time is reported in the statement of changes.

The financial statements prepared are based upon an equation or model, which implies, that all organisations present their financial statements on basis of a uniform structure. This would mean that financial accounting has a unified structure.

Primarily, financial statements are usually meant for people outside the organisation, such as, shareholders, creditors, government, the general public, and like others. These people also get such reports from other organisations, and to maintain uniformity in these statements, financial accounting system uses a unified structure system.

On the other hand, management accounting is mainly concerned with the in-house management. Since the accounting statements are used internally, it varies in structure from organisation to organisation, depending upon the circumstances and requirements of individual use. Therefore, management accounting is tailored to meet the needs of the management of the particular organisation.

The next difference is in the generally accepted accounting principles. Financial accounting is prepared in accordance with the Generally Accepted Accounting Principles, which in short is known as GAAP. Preparation of financial statements following GAAP ensures that the account presentations have been prepared on basis of a norm, as per the general guidelines issued by law.

On the other hand, management accounting is an in-house requirement, and is for the exclusive use of the management of the organisation. These management accounting statements are never made available to the outsiders, and hence could be formulated in the manner as wanted by the in-house management.

The third difference between financial accounting and management accounting is the statutory requirement of preparation of accounts. As discussed above, financial statements are prepared solely for the people outside the organisation, who have interests in the business operation of the organisation. There are shareholders, who would use the information contained in the financial statements, to decide whether or not to invest in the organisation. By law it is mandatory to prepare such statements, and it is a statutory obligation. In fact, the company law not only makes it mandatory to prepare such accounts, it also has laid down the structures, based on which such financial statements need to be prepared.

The fourth difference is the reflection of historical accounts. As mentioned above, there are three types of financial accounting statements that are prepared. Within these three, while the balance sheet and the profit and loss account, report the financial position on a particular date, and the results of operation of the organisation during a specific period of time respectively, the statement of changes of the financial position reports the inflow and outflow of resources during a particular period of time. Therefore, financial statements record historical data. On the other hand, management accounting does not record any financial history of the organisation.

The fourth difference relates to segment reporting. Financial accounting pertains to the business as a whole, though some organisations segment such accounting for its different operating centres. But, as and when the financial statements are presented, it shows the business as a whole. Contrary to this, the management accounting system may present statements in segmented fashion.

Finally, the financial accounting and management accounting differs in respect of their ultimate objectives. Financial accounting is prepared specifically for external reporting, where-as, management accounts are solely for in-house use.

In this brief presentation, it has become quite clear how financial accounting differs with management account preparation. Both of the accounting systems are vital to any business scenario, and are mandatory requirements in a corporate environment.

Financial Accounting and Management Accounting - An Overview
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Generally Accepted Accounting Principals - A Primer

Accountants are the keepers of the standards. They are the ones who make sure that when we look at a financial statement, we can be reasonably that it was built using sound accounting practices and that it is comparable to other audited financial statements for other companies.

That sounds like a daunting task, but never fear. The accounting professional is in business to help you through all this.

The accounting profession is self-regulated. They decide the most appropriate way to record company activity on the financial books of record. They do this through an august board of seasoned professionals, the Accounting Practices Board of the American Institute of Certified Public Accountants (AICPA). This group defines what is known as "Generally Accepted Accounting Principals" or GAAP, which all public accountants must adhere to on behalf of all their clients.

Generally Accepted Accounting Principals - A Primer

The process used to introduce new GAAP or change old GAAP is beyond the scope of this paper, but it is a lengthy process with plenty of review opportunities for all CPAs and business people.

THE PURPOSE OF GAAP

The main purpose of having GAAP is to assure consistency in accounting practices, not only within a company, but across all regulated companies. The SEC requires all publicly held companies to be audited at least annually by a Certified Public Accountant (CPA). The CPA assures the stockholders that they can count on the financial information from the company, because it is in compliance with GAAP.

By preparing all financial information according to GAAP,

o Management can depend on the records and make course corrections for their individual departments or the company as a whole for the betterment of the company.

o Investors and lenders can make sound decisions based on the financial records of the company.

o Stockholders and prospective stockholders get an accurate picture of the company's financial health.

o Stock can be valued fairly on the market

o Deceptive, unfair and even criminal practices are minimized.

PRIMARY PRINCIPLES

The following are some of the primary principles upon which GAAP is built. This is, by no means, a complete description of GAAP, which is very detailed and takes much study to become expert at, but it shows the abiding purpose behind all that detail.

1. Historical Cost Principle: In general, the value of a company's assets is the original cost of those assets less suitable depreciation or amortization. This keeps companies from stating their assets at market value, which is not only difficult to ascertain, but very subjective in nature. Historical cost provides the actual cost which is very objective.

2. Revenue Recognition Principal: This simply states that revenue is recognized when it is earned, which may be a different time than it is received. For example, if your company provides a service at the end of December, but you customer doesn't pay you until January of the following year, your December revenue total will include that amount. January will not, even though that is the month in which you deposited the payment.

3. Full Disclosure Principle: Any information, whether or not strictly financial, that is relevant to the business and may have a future impact, must be disclosed. All transactions must be posted, of course. But even further, this principle provides for disclosure of contingencies. For example, if your company is being sued, the lawsuit must be analyzed for expected chance of loss. This contingency must be disclosed in a footnote of the financial statements. This is to prevent a loan officer or investor from not knowing this possibly impacting information when making decisions regarding investments in or loans to the company.

4. Matching Principle: Put simply, revenue must be matched to the expenses that helped to create it. This is why you have accruals and deferrals. The expenses associated with earning revenue for this period must also appear in this period.

GAAP ASSUMPTIONS

GAAP assumes the following:

1. Going Concern Assumption: The company or entity is a "going concern" and is not likely to end operations in the current year. It is expected to remain in business for the foreseeable future. Any exceptions to this assumption must be disclosed.

2. Economic Entity Assumption: The company is an independent entity and is separate from it's owners.

3. Monetary Unit Assumption: The currency used to measure the entity's financial performance is stable.

4. Periodic Reporting Assumption: Business operations are reported on a regular basis, usually annually. The fiscal year doesn't have to be the same as the calendar year. This is usually set according to the business cycle for the particular company.

Using Generally Accepted Accounting Principles is necessary for all business entities. But you needn't become a GAAP expert yourself. Hire a good accountant. A CPA may be necessary if your company is publicly held, or for loan or business venture requirements.

Generally Accepted Accounting Principals - A Primer
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Michael Russell

Your Independent guide to Accounting

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Revenue Accounting

Revenue accounting is the process of receiving, organizing and recording payments and invoicing, recording, tracking, and collecting loans and other types of debt receivable on customer accounts. Revenue accounting provides essential tools for determining and keeping track of the revenue generated.

In business, revenue means the income that a firm actually receives from its activities, especially from sales of products and / or services to customers. Consistent revenue growth is essential for a firm to attract investors to its publicly traded stock. However, revenue is less important than profit to investors. The word 'top line' is also used to represent the term 'revenue,' because in a company's profit and loss account, revenue is usually placed at the top, and all other costs and expenses below that.

'Revenue recognition' is one the four major principles listed in the US generally accepted accounting principles (GAAP). The other three include the 'historical cost principle,' 'matching principle' and the 'full disclosure principle.'

Revenue Accounting

Data capture, preparation, accounting, auditing, reconciliation, management reporting, and interline billing are the main processes involved in revenue accounting. Airline revenue accounting system is a good example. Its objective is to provide scheduled passenger airlines with a computerized solution to cater to the needs of passenger revenue accounting departments.

Revenue accounting has now grown more complex and auditors are now examining financial records in finer details. Unfortunately, many accounting systems do not handle complex revenue processes well because they are designed for simple revenue processes. You can automate revenue accounting by using software packages. They help you mange multiple business models, corporate entities, and currencies.

Revenue Accounting
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Accounting provides detailed information on Accounting, Accounting Software, Accounting Jobs, Accounting Services and more. Accounting is affiliated with Certified Public Accountant.

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What is Accounting Information System?

Accounting information system is a system of records, usually computer based, which combines accounting principles and concepts with the benefits of an information system and which is used to analyze and record business transactions for the purpose to prepare financial statements and provide accounting data to its users. Some accounting information systems are still manual, i.e. accounting records are made with a pen, paper and manual entries into accounting books.

How are Such Systems Used?
These systems can be customized to meet the needs of a business. For example, information technology professionals responsible for business processes and information technology professionals responsible for the accounting information system can work together to develop and implement such a system so that it automatically gets information from other sources already in use by the business. Also, the systems can be set up to feature certain functions that are important to the business and eliminate functions minor to the business.  Information can be automatically fed, or manually fed into a business accounting information system at whatever pace and however often it is necessary.

What are the Benefits of Using Accounting Information System?
Businesses use accounting information systems to make their accounting activities easier, quicker, and more accurate, since accounting records are analyzed and financial statements are prepared within the system, which allows to safe time of employees and avoid mistakes.  Since many accounting information systems are equipped with error-reducing mechanisms and gather information regarding transactions electronically and automatically, data entry and computing errors are rare. Also, as mentioned above, since such systems are often automatically populated with transaction information, many accounting processes are less cumbersome and time-consuming when using such system.

What is Accounting Information System?

Of course implementation of such system requires investment and time to be spent on the implementation, however future benefits are much higher that the expenses incurred. Also to consider whether business needs accounting information system and what kind of system is required thorough analysis of business and accounting processes has to be made to determine precise requirements.

What is Accounting Information System?
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Explore more information on accounting basics and use home learning accounting courses to understand the importance of accounting for the business. Why wait? Start learning accounting basics now.

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List Of Top Accounting Software For Your Business

Simply put, accounting is the lifeline of a business. Accounting deals with summarizing, analyzing and reporting the financial data and information about a business. An accounting software records and processes the accounting transactions of a business within its functional modules. Financial statements consisting of the balance sheet, profit and loss account, and statement of changes in financial position can be easily prepared with an accounting software.

An accounting software is all about the various functional modules that it has. Some of them are- General ledger which takes care of the company's financial dealings; Accounts Payable where the company enters its bills and pays the money it owes; Accounts Receivable where money received is entered.

The different categories or types of accounting software are as follows:

List Of Top Accounting Software For Your Business

a) Small business/personal accounting software which are mainly meant for home users. They are simple and inexpensive with simple functioning such as management of budgets.

b) Low end accounting software are for small business markets that are capable of serving a single national market. Such software are characterized by 'single entry' products.

c) Mid market accounting software are for companies with large businesses. These software are capable of serving the needs of multiple national accountancy standards and facilitate accounting in multiple currencies.

d) High end accounting software are complex and expensive business accounting software that are also known as Enterprise Resource Planning or ERP software.

However, you have to keep certain things in mind before buying an accounting software, like the prices of the software, its different features, its after-sales support and alike. Most of the accounting software include all the important accounting modules. The more specialized features a software has, the more expensive it becomes. Your software features must be compatible with your business. Also, the after-sales support is important like FAQ package, local service center and others.

There are a lot of top accounting software available in every category. So, it is not easy to select the best ones. Below are top five accounting software in every category.

A. Small business/personal accounting software:

1.ePeachtree (Best Software)

2.MYOB Plus for Windows (MYOB Software)

3.Peachtree Complete Accounting (Best Software)

4.QuickBooks Online (Intuit)

5.Small Business Manager (Microsoft)

B. Low-End Accounting Software:

1.BusinessVision 32 (Best Software)

2.MAS 90 & MAS 200 (Best Software)

3.QuickBooks Pro 2003 (Intuit)

4.ACCPAC Pro Series (ACCPAC International)

5.Vision Point 2000 (Best Software)

C. Middle-Market Accounting Software:

1.ACCPAC Advantage Series Corporate Edition (Best Software)

2.Great Plains (Microsoft) MAS 90 & MAS 200 (Best Software)

3.Navision (Microsoft)

4.SouthWare Excellence Series (SouthWare)

5.SYSPRO (SysproUSA)

D. High-end accounting ERP Market:

1.Axapta (Microsoft Software)

2.e-Business Suite (Oracle)

3.MAS 500 (Best Software)

4.Solomon (Microsoft)

5.ACCPAC Advantage Series Enterprise Edition (Best Software)

In compiling the above list, a variety of factors such as feedbacks from customers, scalability of the software, and after-sales support are used. Also, the different attributes for different categories have been considered like for ERP software, attributes such as manufacturing solution, supply chain solution and database solution. The above compilation may not be all inclusive and some people might choose to differ with it but it is almost near to perfect list.

List Of Top Accounting Software For Your Business
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To get more information about accounting, types of accounting software and accounting software myths visit http://www.managemyaccounting.com/

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Investing Wisely With Online Brokerage

In this ever-fluctuating financial era, to make a wise investment, you need to think not once, not even twice, but many times to fetch maximum benefit out of it. Initially, traditional stock brokers were used to be the helping hand and brain who supplied the latest information regarding ups and downs of the stock market as well as helped in sale and purchase of stocks. But, advent of Internet and increasing number of users has given rise to the concept of online brokerage.

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Similar to traditional brokerage, online brokerage came into existence to help the investors deal with their finances. Online brokerage industry provides services by making a fair assessment of the investors' current financial situation, assisting them in executing financial plans, providing them the stocks of their interests, but more effectively and quickly as compared to that to traditional brokerage.

Well, online brokerage industry is gaining fast grounds every second. Out of today's busy schedule and ease of Internet, Americans prefer online brokerage credited to its quick and effective services. Estimates reveal that number of investors, trading online in U.S. has increased remarkably from 4.1 million to 21 million in a span of just 5 years.

Investing Wisely With Online Brokerage

We can't deny the fact that online brokerage industry has been notorious of its loopholes and pitfalls, yet it seems to be gaining popularity among the investors. This scenario prompted the Securities and Exchange Commission (SEC) to analyze and scrutinize the investment products that are offered to the investors by online brokerage industry. In order to keep a thorough check, SEC has directed online brokerage industry to furnish certain obligatory information pertaining to the;

Contents of the broker's or company's web site Quoted prices of the products Information furnished to the clients Security of clients' account

Despite these measures and controls, SEC has still not been able to impose directives that could allow a client to produce his detailed and accurate statement of his assets and access his account online any time. However, this issue has neither hampered the image of online brokerage industry nor affected the inclination of investors towards online trading.

Nowadays, when more and more investments and stock transactions are being made online, the need of an efficient online broker has become inevitable. Over the years, number of companies offering online brokerage have stepped in. They are targeting the prospective customer by offering services, which deal with their specific investment needs and priorities.

Just few words of caution for the beginners before they open an account and make investment through online brokerage

Perform an in-depth research on the company's history and financial status. Assess the speed of the company's website and check whether the site is free from technical problems. Check the quality of services offered. Check the authenticity by calling at the company's help desk. Place your queries regarding the commission rates, services rendered and judge the swiftness with which they provide the solution.

Well, despite having downsides, online brokerage is still charming investors to online trading and investment for a variety of benefits, including the low broker fees and investors' full control over the stocks. In simple yet golden words, online brokerage provides investors an entire new level of independence, yet gaining maximum benefits from hard earned money.

Investing Wisely With Online Brokerage

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Evolution of Accounting

Accounting has been called as the language of business. Accounting is the system which measures business activities. It processes activities in business into reports and communicates the results to top management. Let us now look through the advancement of accounting.

Ancient Accounting

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As early as 8500 B.C., accounting has already existed. Archaeologists have found clay tokens as old as 8500 B.C. found in Mesopotamia which were usually cones, disks, spheres and pellets. These tokens correspond to such commodities like sheep, clothing or bread. They were used in the Middle West in keeping records. After some time, the tokens were replaced by wet clay tablets. During such time, experts concluded this to be the starts of the art of writing. Examples of ancient civilizations keeping account records are China, Babylonia, Greece and Egypt. Like in Babylonia during 3600 B.C., payments of salaries were recorded in clay tablets. In addition, the rulers of these civilizations keep track of labor and material costs used in building structures using accounting. A good example is the case of the Egyptian pharaohs in building their magnificent pyramids.

Evolution of Accounting

Middle Ages

During the thirteenth to the fifteenth centuries, trade flourished places such as Florence, Venice and Genoa, thus, there was advancement in account keeping methods, thanks to the merchants and the bankers of such time. during the 1211 A.D., one of the systems in accounting was kept by a Florentine banker. However, the system was primitive as the concept of equality for entries was absent. Double entry records first came out during 1340 A.D. in Genoa. In 1494, the first systematic record keeping was formulated by Fra Luca Pacioli, a Franciscan monk and one of the most celebrated mathematicians to this day. Pacioli is considered as the father of accounting.

Industrial Revolution

The industrial revolution which was characterized by great changes in working and business transactions paved way to the specialized field of accounting called cost accounting in order to meet the need for the analysis of various costs. In addition, since there was a development of the corporate form of organization, there was a need for a separate and independent report to assure the management's financial representations are reliable. Information Age

At present, there have been tremendous advancements in accounting to meet the needs brought about by information technology. Those duties that required manual, tedious and time-consuming methods can now be done using the computers which make work faster, more reliable, accurate and precise. True enough, business transactions have changed and evolved. Businesses can now be transacted virtually making it faster and hassle free. Businessmen transact their businesses without even facing one another has become possible all because of information technology. With the advancement of businesses, accounting has also advanced to meet the needs of businesses at this day. There has been a great quantity of applications and elements of accounting that meet up the various needs of businesses. As they often point out, as a smart businessman, one must breathe in information technology to keep up with the trend and stay competitive.

Evolution of Accounting

Michael Russell
Your Independent guide to Accounting

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