Financial Accounting and Management Accounting

Accounting is nothing but classification of money related transactions which are first recorded in a chronological order. These classified transactions are grouped appropriately to generate Financial Statements like PnL, Balance Sheet and Cash Flow. Financial Statements are used for meeting statutory requirements like publishing financial results, paying taxes and filing related returns.

Meeting the statutory requirements is not the only purpose of accounting. Equally important is meeting management requirement of efficient conduct of business, eventually achieving organizational objectives.

Producing financial statements and related book keeping may broadly be called Financial Accounting. And using this information, extracting and presenting analytical content is called Management Accounting.

We are familiar with processes which are associated with Financial Accounting as Accounts Payable, Accounts Receivable, Cash & Bank Operations and Financial Reporting. Processes associated with Management Accounting are Product Costing, Project Costing, Planning & Budgeting and MIS or Management Reporting for Performance Monitoring.

All these processes have evolved over the years and entry of computing as business applications has made these processes robust and capable of meeting high volumes and complex business models. These applications have enhanced the relevance and utility of accounting for efficient conduct of business.

ERPs developed for large enterprises by and large have introduced best practices, utilized technologies, including features of AI for providing effective business solutions. These benefits are yet to percolate down to the MSME Sector to the same extent.