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Chapter 1, End of Chapter, Decision Points, Exercise 1

Page 19

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Accounting is the measurement and recording of all the financial activities of a business and providing relevant information to its users.


The difference between management accounting and financial accounting is: 

  • Management accounting is not restricted by Generally Accepted Accounting Principles (U.S. GAAP), whereas financial accounting is based on Generally Accepted Accounting Principles (U.S. GAAP).
  • Management accounting is future-oriented, whereas financial accounting is past-oriented.
  • Primary users of management accounting are managers of the organization, whereas the primary users of financial accounting are external users (stakeholders).
  • Management accounting also influences the behavior of the employees that helps in the growth of the organization, whereas financial accounting focuses on reporting primary economic events.

Verified Answer

Management accounting is concerned with reporting the financial and non-financial matters to internal users, such as managers and directors, for the purpose of planning, controlling, and decision making. 


On the other hand, financial accounting is concerned with reporting to external parties, such as banks and investors. The main objective is to disclose the end results and financial position of the business, which helps the stakeholders in making informed decisions.

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