COST AND MANAGEMENT ACCOUNTING ESSAY Example | Topics and Well Written Essays - 2000 words

COST AND MANAGEMENT ACCOUNTING - Essay Example However, this paper analyzes only two branches of accounting namely financial accounting and management accounting. This report aims at analyzing these two branches in details by looking at each branch separately in regard to accounting. The paper also looks at the differences between the two branches of accounting basing on various factors. Financial accounting It is a branch of accounting that deals with finding and giving information on the profitability of a business. It aims at compiling financial statements of an organization and preparing them so that they show the financial position of a business. This branch is concerned with preparing these statements at the end of every financial year by analyzing revenues, assets, liabilities and other aspects of accounting (Drury 2007). It is the branch that handles the process of accounting and recording in the organization. It determines whether the business has made losses of profits in a certain financial year by preparing relevant f inancial statements. Managers use financial statements to determine the economic solidness of the company. This branch determines the financial position of an organization at a particular time for the purpose of other people like creditors, managers and shareholders of the business. Financial accounting entails providing information to external parties like suppliers and creditors to enable them make decisions (Ahmed 2008). Financial accounting provides managers with information on the company’s financial position, and this helps him to determine the performance of the company finances. With this information, the manager will be in a position to make financial decisions about the company like how to improve on the performance and to devise relevant strategies to improve on the performance of the company. A review of the balance sheet of the company helps managers to determine the cash levels of the company hence making the right decisions. The profitability trends obtained fr om the financial accounts is a critical tool for managerial decisions as it helps the managers to engage in those transactions which tally with the profit potential of the company (Ahmed 2008). Professionals under this branch have to get credibility from various authorities to ensure that they are fit to prepare financial statements and provide information to the relevant parties. For instance, in the United States of America the body that provides such credibility is the American Institute of Certified Public accountants. This body ensures that professionals who carry out the objectives of financial accounting meet the requirements and that they prepare the statements according to the framework (Gupta 2008). Therefore, financial accounting helps managers to determine whether the financial accounts have been prepared in accordance to the set regulations and to make decisions concerning payment of taxes. Financial accounting reduces the common problem of principal agent in an organiz ation. It reduces agency problem by measuring the performance of agents and reporting to concerned parties so that this problem is reduced. It deals with summarizing data from the financial statements that it prepares. It then publishes these statements in annual reports for