Purposes Of Management Accounting and Financial Accounting:Basic Distinctions

The accounting system is the major quantitative information system in almost every organization. It should provide information for three broad purposes:

1. Internal reporting to managers, for use in planning and controlling routine operations
2. Internal reporting to managers, for use in making nonroutine decisions and in formulating major plans and-policies
3. Externai reporting to stockholders, government, and other outside parties

Both management and external parties share an interest in all three important purposes, but the emphasis differs. External reporting is mainly concerned with the third purpose: the historical, custodial, and stewardship aspects of accounting. This area is usually called financial accounting, which is heavily constrained by generallv accepted accounting principles. on the other hand, internal reporting focuses on the first two purposes: management planning and control. This area is usually called rnanagement accounting, which has looser constraints than financial accounting. The distinction between financial accounting and management accounting became institutionalized in the United States in 1972 when the National Association of Accountants (NAA), the largest association of internal accountants in the United States, established a program leading to the Certificate in Management Accounting (CMA)., The Certified Management Accountant (CMA) is the internal accountant's counterpart of the CPA (Certified Public Acccuntant).