Introduction
Financial and management accounting are two key branches of accounting that serve different purposes.
Financial accounting focuses on the preparation and reporting of financial statements to external stakeholders such as investors, creditors, and regulatory bodies. It follows a set of generally accepted accounting principles (GAAP) to ensure consistency and transparency in financial reporting. Key concepts in financial accounting include the accrual basis of accounting, which recognizes revenues and expenses when they are earned or incurred, regardless of when cash is exchanged, and the materiality principle, which states that only significant transactions should be recorded in the financial statements.
Management accounting, on the other hand, focuses on providing internal stakeholders such as managers with financial information to aid decision-making. It uses techniques such as cost accounting, budgeting, and variance analysis to help managers control costs, maximize profits, and improve efficiency. Key concepts in management accounting include cost behavior analysis, cost-volume-profit analysis, and budgeting.
Overall, financial and management accounting play different but complementary roles in supporting the financial health and performance of a business.
Content
In this session we're going to talk about the accounting equation, we'll, see at the end that it's quite a simple relationship.
And even the most sophisticated accounts are built up from these principles.
So I want to take you through a scenario, a pretend scenario, and we will look at the way.
The accountants equation comes into play.
So we'll start with a scenario.
And the scenario will be that Jim.
Whoever Jim is jim has just opened a business called right car.
A local magazine, advertising cars for sale in the local area.
So that's, Jim's business, Jim has a small car magazine, advertising, local cars in the local areas.
People want to buy second-hand cars and sell their car.
And so on.
Now, in order to to do this, the following transactions were needed during the first days of trading.
So in order to get the business running, he had to incur some costs, and he needed to record these costs.
Now in test situation, a student test situation, you may be required to draw up the accounts or the accounting equation at the end of each day, that's.
What we'll do here? First of all we look at the scenario facing Jim what he did and then we'll we'll construct the accounts.
So we start with the first day let's say, the first day was the 20th of November.
Now Jim opened a bank account and deposited ten thousand pounds.
So that's, the start ten thousand pounds into the business.
Day is two two, five, Jim needed an electrician to provide power to his new office.
So he paid the electrician four thousand two hundred pounds on the 30th of November.
So he put ten thousand pounds into the bank.
Now he's paid out four thousand two hundred pounds under 30th of November, just perhaps keep a short note on each of these.
So that when were working through the accounts in a moment, he won't be fresh in your mind right now on dr6 Jim decided to stock some small car components and advertised them in the magazine.
Also he managed to negotiate credit on the stock of components.
He needed to pay for this stock on the 21st of November, I'm, sorry of December.
And this amounted to twenty seven thousand two hundred and fifty pounds.
So now he's going to sell some small items associated with cars in the magazine, and he peered, twenty seven thousand two hundred and fifty pounds.
But he got a ton credit.
He doesn't have to pay it until the 21st of December later on on the seventh day, Jim realized that more cash may be needed to run the business.
So he arranged a business loan from the bank for the sum of forty five thousand pounds.
Now, that's the that's, what what we've got okay.
So we've got.
He opens the business on the 20th of November, ten thousand pounds in the bank.
Then he employed an electrician, four thousand two hundred pounds on the 30th of November.
Then he managed to get some stock, which he would sell in the magazine, and he owed twenty seven thousand two hundred and fifty for that, which he had to pay on the 21st of December.
And then finally, he arranged a loan from the bank of forty five thousand pounds.
So let's see how how this would work out in terms of a very simple structure.
So we start with assets liabilities in capital.
Now as far as we're concerned here, the not just put the cursor onto the screen.
Here we go the gym boots, ten thousand pounds into the bank.
And the capital is ten thousand pounds.
So the two sides balance.
If you like, we've got ten thousand pounds in assets and ten thousand pounds in capital.
So that's, fairly straightforward, I.
Think that he's straightforward.
Now next, if you remember, he got an electrician to do some work and he piayed 4,200 pounds.
So that means his bank account has now gone down, but he has got improvements to the premises, an extra four thousand two hundred pounds that really is an asset.
This work done was as good.
It helps him to run the business it's, an asset of the business.
So his assets remain to see him.
Ten thousand pounds, he's got improved electricity.
But his bank balance has gone down.
The capital has remained the same ten thousand pounds on each side.
Next we got this 27,000 pounds, which is his stock his inventory, but he needs to he needs to pay for that.
So he got a liability as well.
So now, if we look at it, we've got assets here, 5,000 pounds in the bank 4200 from the electrical work, which improves the premises and he's got 27,000, 250 which he got on credit for these components, he's going to sell in the magazine.
If you add it all up, it comes to thirty, seven thousand two hundred and fifty.
Well, he needs to pay the twenty seven thousand two hundred and fifty over here.
So it's a liability.
But of course, he still has the capital.
Well, he this is what he put in at the start.
He doesn't have it because what he has five thousand eight hundred pounds, really engage hands on.
This is actually in components to be sold and that's now, a part of the premises.
But if you look at it, if you add the capital to the liabilities, you get the assets, that's important, that's, the equation capital, plus liabilities equals assets, simple that's, what you need to know you need to know, capital, plus liabilities equal assets.
If you manage to get a loan of 45,000 pounds, if we add in the loan, because he has to repay it's a liability, if we add in the 45,000 pounds, of course, we'd added on to the bank here.
He'd forty five thousand.
He had five thousand eight hundred in the bank, add five thousand eight hundred to forty five thousand fifty thousand eight hundred.
So his assets now are eighty two thousand two hundred and fifty.
But his liabilities are seventy two thousand two hundred and fifty.
But again, capital, plus liabilities equals assets.
So we've established our accounting equation capital, plus liabilities equals assets that is the situation in terms of a balance sheet.
And again, if you look at capital plus liabilities, if you add up the liabilities here there in brackets because they're old, this is this is not the money of the business.
Whenever it's like a minus sign.
Whenever the the company owes money, we'll, put it in brackets that's that's, a negative.
Twenty-Seven thousand two hundred and fifty plus forty five thousand, which is seventy two thousand two hundred and fifty.
And if we add four thousand two hundred 270th, there's, no, do we get eighty two thousand two hundred and fifty so of the seventy two thousand two hundred and fifty from those two plus ten gives you the eighty two thousand in terms of assets, that's all there is to flee accountant accountancy equation.
Thank you for watching.
FAQs
The main concepts of management accounting are related to estimating and tracking costs. In tune with this, management accounting concepts include cost analysis, cost behaviour, and cost variances.
What are the concepts of financial and management accounting? ›
Financial accounting and managerial accounting describe two distinct record-keeping disciplines. Financial accounting mainly refers to the statements corporations present to investors and prospective shareholders. Managerial accounting describes the process of analyzing financial information tracked by managers.
Is financial accounting hard in college? ›
No, financial accounting is not a hard class.
Generally speaking, accounting is overall a difficult major, but financial accounting is a very straightforward class in the beginning. Financial accounting class teaches you the fundamentals of accounting.
Is managerial accounting class hard? ›
Managerial accounting is another relatively easy class. This class covers topics like cost analysis and budgeting. However, it's important to remember that every accounting degree program is different. So, even if a class is considered easy by most standards, it might be challenging for you personally.
What are the 4 basic management concept? ›
Originally identified by Henri Fayol as five elements, there are now four commonly accepted functions of management that encompass these necessary skills: planning, organizing, leading, and controlling.
What are the five concepts of financial accounting? ›
All financial transactions revolve around five basic components, i.e., assets, liabilities, income, expenses, and equity. Also, every financial transaction has two equal aspects. For example, if cash is withdrawn from a bank in the company's book under the double-entry system.
What is the main concept of financial accounting? ›
Financial Accounting is the process of documenting, analyzing and reporting every transaction of a business or an organization, in order to assess the financial health and stability of the same. There are a set of guidelines to be followed according to the Financial Accounting Standards Board (FASB), US.
What is the main concept of financial management? ›
Financial management is strategic planning, organising, directing, and controlling of financial undertakings in an organisation or an institute. It also includes applying management principles to the financial assets of an organisation, while also playing an important part in fiscal management.
What is the easiest accounting degree? ›
The easiest accounting degree to get is typically an associate degree in accounting. An accelerated accounting degree at this level typically takes less than one year and features primarily introductory classes. Despite being at the graduate level, a master's degree may also be considered easy for some.
Can you be an accountant if your bad at math? ›
Accounting can be challenging, especially if you're not a math person. This belief is common, and even though accounting requires understanding financial principles, basic math skills are necessary to complete accounting tasks.
Tax Accounting: Usually some of the most difficult classes for an accounting major as they delve into the minutia of tax codes, though this knowledge is a major source of income for accounting graduates.
Is finance hard if you're bad at math? ›
Believe it or not, mastery of advanced math skills is not necessary to have a career in finance. With today's technology, all math-related tasks can be done by computers and calculators. That said, there are some basic math skills that would certainly make you a better candidate in the finance industry.
Does managerial accounting have a lot of math? ›
Managerial accounting definitely requires math, but the focus is on arithmetic—analyzing expenses and profits, budgeting, and more. You'll then learn how to use this information to predict the financial future of your business and make good decisions about payroll, raises, layoffs, and more.
Why is management accounting so difficult? ›
Yes, managerial accounting is hard.
Managerial accounting is a type of accounting that focuses on meeting the needs of internal stakeholders at a business. This type of role can be stressful due to the demands of meeting the needs of various people as well as the business.
What are three 3 key concepts in management? ›
The chart of “The Management Process,” begins with the three basic elements with which a manager deals: ideas, things, and people. Management of these three elements is directly related to conceptual thinking (of which planning is an essential part), administration, and leadership.
What are the 5 management concepts? ›
They are Planning, Organizing, Staffing, Directing, and Controlling. In addition to above five functions, the two functions such as Innovations and representation are also necessary for managers.
What is difference between financial accounting and management accounting? ›
The key difference between financial accounting and management accounting is that financial accounting provides an overview of a company's overall performance, while managerial accounting focuses on providing internal information to managers in order to help make informed decisions regarding business operations.
What are the three major task of management accounting? ›
Managerial accounting is used for planning, decision-making, and controlling. These are the three pillars of the field. In addition, forecasting and performance tracking are key components.
What is the difference between management and financial accounting? ›
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.
What is 7 concept of accounting? ›
: Business Entity, Money Measurement, Going Concern, Accounting Period, Cost Concept, Duality Aspect concept, Realisation Concept, Accrual Concept and Matching Concept.
ADVERTIsem*nTS: Read this article to learn about the following eight accounting concepts used in management, i.e., (1) Business Entity Concept, (2) Going Concern Concept, (3) Dual Aspect Concept, (4) Cash Concept, (5) Money Measurement Concept, (6) Realization Concept, (7) Accrual Concept, and (8) Matching Concept.
What are basic financial concepts? ›
What are the most important financial metrics to track in a business? Profit margins, working capital (cash flow), cost of goods sold, revenue, return on investment, and return on advertising spend.
What are the 3 basic concepts of accounting? ›
What are the Basic Accounting Concepts?
- Accruals Concept. Revenue is recognized when earned, and expenses are recognized when assets are consumed. ...
- Conservatism Concept. ...
- Consistency Concept.
There are ten main accounting concepts, or principles of accounting that we will discuss in this article: the going concern concept, accrual basis of accounting, revenue recognition principle, matching principle, full disclosure principle, conservatism principle, materiality principle, income measurement objective and ...
What are the 4 types of financial accounting? ›
For-profit businesses use four primary types of financial statement: the balance sheet, the income statement, the statement of cash flow, and the statement of retained earnings.
What is the lowest degree in accounting? ›
Bachelor's programs will typically be more selective than associate's programs, but in order to become an accountant, a bachelor's in accounting is usually the minimum requirement, whereas bookkeepers and accounting clerks typically start with an associate degree in accounting.
Is an accounting degree worth it without CPA? ›
“For those more advanced roles, a degree in accounting or finance is often preferred.” But a proven track record can outweigh even the CPA credential. “I've seen senior accountants without CPAs who have 10 years of experience move into accounting manager and controller level roles,” says Campman.
Which major is harder accounting or finance? ›
Generally speaking, people consider accounting majors to be more difficult to study and pass than finance majors. And there are a few different reasons for this. The content of accounting majors is, on average, much more technical than for finance majors, and this can make it more difficult.
Do accountants use calculus? ›
Other necessary fields of math used in accounting include calculus and linear algebra. Calculus is often used to calculate interest rates, while linear algebra is used to solve systems of equations.
What kind of math do accountants use? ›
Accounting isn't hard-core math. It's basic addition, subtraction, multiplication, and division. Possibly some light, entry-level algebra, but that's it. You don't have to understand calculus.
You must usually earn an overall GPA of 2.5 or better for the college courses you complete, although colleges may vary in their admission requirements for accounting majors. Some schools require a cumulative GPA of 3.0 or better.
How hard is accounting 1 in college? ›
It's Not as Bad as You Might Think. Getting your degree in accounting really isn't any more difficult than any other potential field of study. Just like any other program, you'll run into some elements of accounting that are complex, but you may also find some of it to be relatively intuitive, or even easy.
Is accounting a stressful career? ›
It can be a stressful job
As an accountant is responsible for a person's or company's finances, it can be stressful to handle all this sensitive and confidential information. Also, identifying minor discrepancies that can affect coworkers' jobs, can generate stress and anxiety.
Is accounting hard without a degree? ›
It can be challenging for non-accounting majors to obtain the necessary experience to sit for the exam. Most states require 150 college credits, which exceeds the 120 credits required for a bachelor's degree. Different states have different regulations regarding the required number of credit hours.
Is a finance degree math heavy? ›
While minimal math studies are required for all business majors, finance happens to be one of the most quantitative fields. To learn essential skills such as analyzing and assessing investment performance and financial planning for savings goals, you must acquire a solid foundation in mathematics.
Does finance have a lot of calculus? ›
Calculus plays a significant role in the financial market. From stochastic calculus to algorithmic trading and the Greeks, calculus is used to make predictions and optimize trading decisions. The Golden Ratio is embedded in the stock market and is used to identify trends and make informed decisions.
What math is used most in finance? ›
Algebra. Many banking and investment financial models require a financial management professional to solve for variables. Today, programs like Excel take most of the work out of this process, but a sound understanding of the basic principles of algebra is still widely considered to be extremely helpful.
What majors don t require calculus? ›
The following majors do not require Calculus
- Anthropology.
- Art and Art History.
- Classics.
- Communication.
- English.
- Environmental Studies.
- Ethnic Studies.
- History.
If you would like to avoid math altogether, you may consider human services jobs with a strong psychology, counseling, or social welfare component. Jobs in writing, publishing, public relations, advertising, and communications also require virtually no math at all.
Who earns more financial or management accountants? ›
Managerial accountants, however, generally prepare their reports for internal audiences. Managerial accountants typically command higher salaries than financial accountants.
The best way to prepare for financial or managerial accounting is to do the homework every night soon after leaving the class. Chapters are covered over a few class periods, so make sure to do the parts that you learned to ensure a good grade.
How can I get better at management accounting? ›
How to improve management accounting skills
- Be a team player. Collaboration is the key towards truly improving your management accounting skills. ...
- Must have commercial awareness. Having the accounting knowledge is not enough. ...
- Effective communication.
What is management accounting? Managerial accounting, also called management accounting, is a method of accounting that creates statements, reports, and documents that help management in making better decisions related to their business' performance. Managerial accounting is primarily used for internal purposes.
What are the 4 components of management accounting? ›
Preparation of these data and reports is the focus of managerial accounting, which consists mainly of four broad functions: (1) budgetary planning, (2) cost finding, (3) cost and profit analysis, and (4) performance reporting.
What are the three basic concept of management? ›
The chart of “The Management Process,” begins with the three basic elements with which a manager deals: ideas, things, and people. Management of these three elements is directly related to conceptual thinking (of which planning is an essential part), administration, and leadership.
What are the three types of management concept? ›
There are three broad categories of management styles: Autocratic, democratic and laissez-faire.
What are the 5 major elements of accounting? ›
In general, there are 5 major account subcategories: revenue, expenses, equity, assets, and liabilities. A business transaction will fall into one of these categories, providing an easily understood breakdown of all financial transactions conducted during a specific accounting period.
What are the five 5 basic components of an accounting system? ›
Accounts are divided into five categories: Assets, Liabilities, Net Assets or Fund Balances, Revenues, and Expenses.
What are the 5 concept of management? ›
They are Planning, Organizing, Staffing, Directing, and Controlling. In addition to above five functions, the two functions such as Innovations and representation are also necessary for managers.
What is an example of the concept of management? ›
Concept of management is defined as the process of getting things done from others to achieve goals effectively and efficiently. To complete a task with minimum cost. For example: – 'A' got a task of construction of the Flyover.
Management process includes all the function that are followed by a manager as a managerial action which includes planning, leading, organizing, managing and controlling. Therefore, working is not a basic function of planning. Was this answer helpful?
What is the basic concept of management? ›
“Management is the process of planning, organizing, leading and controlling the efforts of organization members and using all other organizational resources to achieve stated organizational goals.”
What are the 3 main managerial skills? ›
Types of managerial skills
- Technical skills.
- Conceptual skills.
- Human or interpersonal management skills.
The four most common types of managers are top-level managers, middle managers, first-line managers, and team leaders.
