What is the relationship between Financial Management and financial accounting?

Management accounting is a field of accounting that analyzes and provides cost information to the internal management for the purposes of planning, controlling and decision making.

Management accounting refers to accounting information developed for managers within an organization. CIMA (Chartered Institute of Management Accountants) defines Management accounting as “Management Accounting is the process of identification, measurement, accumulation, analysis, preparation, interpretation, and communication of information that used by management to plan, evaluate, and control within an entity and to assure appropriate use of an accountability for its resources”. This is the phase of accounting concerned with providing information to managers for use in planning and controlling operations and in decision making.

Managerial accounting is concerned with providing information to managers i.e. people inside an organization who direct and control its operations. In contrast, financial accounting is concerned with providing information to stockholders, creditors, and others who are outside an organization. Managerial accounting provides the essential data with which organizations are actually run. Financial accounting provides the scorecard by which a company’s past performance is judged.

Because it is manager oriented, any study of managerial accounting must be preceded by some understanding of what managers do, the information managers need, and the general business environment.

Comparison chart

	Financial Accounting	Management Accounting
Objectives	The main objectives of financial accounting are to disclose the end results of the business, and the financial condition of the business on a particular date.	The main objective of managerial accounting is to help management by providing information that is used to plan, set goals and evaluate these goals.
Audience	Financial accounting produces information that is used by external parties, such as shareholders and lenders.	Managerial accounting produces information that is used within an organization, by managers and employees.
Optional?	It is legally required to prepare financial accounting reports and share them with investors.	Managerial accounting reports are not legally required.
Segment reporting	Pertains to the entire organization. Certain figures may be broken out for materially significant business units.	Pertains to individual departments in addition to the entire organization.
Focus	Financial accounting focuses on history; reports on the prior quarter or year.	Managerial accounting focuses on the present and forecasts for the future.
Format	Financial accounts are reported in a specific format, so that different organizations can be easily compared.	Format is informal and is on a per department/company basis as needed.
Rules	Rules in financial accounting are prescribed by standards such as GAAP or IFRS. There are legal requirements for companies to follow financial accounting standards.	Managerial accounting reports are only used internally within the organization; so they are not subject to the legal requirements that financial accounts are.
Reporting frequency and duration	Defined - annually, semi-annually, quarterly, yearly.	As needed - daily, weekly, monthly.
Information	Monetary, verifiable information.	Monetary and company goal driven information.

Video Explaining the Differences

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Finance can be defined as the art and science of managing money. Virtually all individuals and organization earn or raise money and spend or invest money. Finance is concerned with the process, institutions, markets and instruments involved in the transfer of money among and between individuals, business and governments. Finance, in another word, can be defined as the management of the flows of money through an organization, whether it be a corporation, school, bank, or government agency. Finance concerns itself with the actual flows of money as well as any claims against money. Finance is regarded as the life-blood of the business unit. This  function involves planning, procurement and effective utilization of the funds of the business.

Accounting is the methodical or precise recording, reporting, and assessment of financial deals and transactions of a business. Accounting also involves the preparation of statements or declarations concerning assets, liabilities, and outcomes of operations of a business.

Relationship Between Finance and Accounting

Finance concerns with accounting because financial accounting is one branch of accounting. Accounting relates to booking of the historical transaction of an organization and it leads to preparation of financial status of the company stating that asset and what liabilities are held by the entity as on the day when relevant period like a year ends i.e. Balance Sheet.

Financial status is concluded from the accounting records (i.e. balance sheet, profit and loss account). Account keeps the record of the organizations income, expenditure, asset liabilities and by evaluating those transactions finance makes the decision for investment like where to invest? How much funds to invest? Etc. In a short form we can say that where account ends of keeping records, finance starts the work by evaluating them.

Finance is connected with accounting. The accounting process produces one of the essential raw materials needed to make financial decisions, financial data. Accounting is a tool for handling only the financial aspects of business operations. It is geared to the financial ends of business only because these are measurable on the scale of money values. The distinction between financial management and management accounting is semantic one, but the gap between the two is rapidly closing. Financial management, however, has the broader meaning of planning and control of all activities by financial means, while management accounting originally meant the internal management of finance. The accountant devotes his attention to the collection and presentation of financial data. The financial officer evaluates the accountant statements, develops additional data and arrives at decisions based on his analysis. As a matter of fact, sound financial management is a matter of good accounting.

Accounting and Finance is a very important function of any business either for profit making or for non-profit making institutions. It provides an avenue where a business analyses its operations in terms of what they own, what comes and what goes out.

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