Thursday, May 26, 2022

CIMA BA2 And BA3 Theory: Management VS Financial Accounting

Hello and welcome to this astrality video today we'll be looking at the roles of management and financial accountants we'll start off by looking at their function and purpose and then use this to draw out some distinctions between them this is particularly important if you're .

Studying for ba2 or ba3 as this is a topic which may appear in your exams this is an extract from chapter one of our ba2 course if you want to view the full video this can be found on the astranti website where all of our sema certificate resources can be accessed for free .

On there you'll also be able to find study texts and a range of mocks and exam style questions which have all been designed to help you pass your sema certificate exams but for now let's jump straight in and consider the roles of management and financial accountants let's say that you're a director of a .

Shoe factory and you've got the responsibility for ensuring that the business is profitable and run effectively so to do this you require all kinds of information about the performance of the business a task which you've got two accountants to help you with you've got bob and you've got megan .

So bob provides you with information you need to help make business decisions so for example by reviewing performance over the past year identifying any variances so why are you overspent in certain areas and how these variances can be avoided or in fact improved in the future he helps you understand what costs are likely to be in the future and .

Outlines the budget and also estimates and evaluates the profitability of a new shoe line for example and with all of these responsibilities bob is a management accountant now megan on the other hand takes all of the day-to-day accounting transactions and records them all which includes .

Documenting information on the assets liabilities and the equity of the company and she then uses this information to compile monthly reports which outline the profitability of the business last month and its financial position and then at the end of the year presents all of this information in a set of .

Financial statements that will be available for all stakeholders to view and with these responsibilities megan is a financial accountant and contrasting the roles of management and financial accountants is the best way to fully understand the roles each carries out now it's worth saying that in the real world accountants take up .

Both areas of responsibility but we're going to assume that both bob and megan have very clearly defined roles so bob as a typical management accountant will use internal accounting information to provide management with the basis to make informed business decisions whereas megan as a typical financial .

Accountant is more focused on recording financial transactions and then ultimately summarizing this information in the financial statements such as the statement of profit or loss or the balance sheet so that the shareholders and other interested parties regulators government staff for example can understand the financial performance of .

The business so there are a number of key differences between these two types of accounting let's outline each of these and consider what bob and megan would do within each area starting with the focus of each and management accountants primarily have a forward-looking focus on supporting future decisions .

So bob would for example predict the profitability of a new range of shoes or the likely impact on profits that opening new stores in a different country would have whereas financial accountants focus on historic information and recording past transactions so megan would record and organize all of last year's transactions .

To calculate last year's profits and the basis of the information that both uses also differs so management accountants use both financial and non-financial information with a degree of prediction and estimation about the future in order to support future decision making so bob would review the past sales of similar ranges .

And trends in shoe sales across different markets to help predict how well the new range is likely to sell whereas megan on the other hand as a financial accountant she'll consider purely factual financial information based on past events recording and reviewing the completed and actual transactions relating to things like .

Materials purchases salaries asset purchases and sales but once this information has been analyzed who makes use of it what is the demographic for these two types of information well management accounting information will be used by managers within the business within the organization to form .

A basis upon which informed decisions can be made regarding the business its aims and how it operates some managers will use bob's reports for example to help them decide whether to go ahead with the new suit range whereas the financial accounting information has a much wider range of users including shareholders creditors .

And public regulators all of which will want to review the financial statements that megan produces in order to better understand the company's past performance and with the differing user groups comes a difference in the availability of this information so management accounting information as .

Its focus is on supporting internal decisions which could be key to competitive advantage is usually confidential so bob for example wouldn't disclose any information relating to the new shoe range in order to retain an edge over competitors whereas the financial statements that megan produces well these are publicly .

Available you could even go online right now and see the financial statements of a number of different companies available to view on their websites and the nature of the information produced by both also impacts on the construction of the reports how the information is compiled so management accounting reports and information are .

Assembled subjectively they're assembled according to the needs of the user or the business so bob has got no specific rules to apply when he's doing his evaluation and must deliver information necessary to support future decisions in the most suitable format for decision making whereas on the other hand financial .

Accounts need to be constructed according to general accounting standards so megan's got to abide by strict standards adhered to a set structure which ensures that information is clearly understandable by all the external parties that might be using these reports so to summarize all of this we can say .

That a management accountant is employed by a company to assess internal information and analyze how it can be used to improve performance in the future which differs from a financial accountant or an auditor who is often external brought in to ensure the company is complying with financial and .

Accountancy regulations so we've now come to the end of today's video and you should now be confident in distinguishing between management and financial accountants if you want to see the full video this can be found on the astranti website where all of our sema certificate resources .

Can be accessed for free once you've signed up you'll not only be able to access this video but all of our sema certificate study texts videos exam practice questions as well as mocks for each of our certificate exams why not also join i'll see my certificate study group on facebook where you can share study tips .

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Thanks for watching

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