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Question 1: Why is it important to keep Financial Accounts? Financial Accounts are specialized accounts that keep track of a company's financial transactions. Using standardized guidelines, the transactions are recorded, summarized, and presented in a financial report or financial statement such as an income statement or a balance sheet. The major purpose of financial accounting is not to report the value of a company. Rather, its purpose is to provide enough information for others to assess the value of a company for themselves. Financial accounts are also useful for the following purposes: Deciding what and how much investors invest in the company. Analyzing and assessing a business potential areas of growth as well as its areas of loss. Tracking earnings and losses of past years. Assessing the effect of company trends and seeing how they may have affected the company, whether positive or negatively. Determining some of the reoccurring factors affect the financial statements and giving clues on what can be done to avoid potentially dangerous financial events in the future. Reference when being audited. Determining what the companys expected future shares will be sold at.

Question 2: What is the difference between Financial Accounting and Management Accounting? Financial Accounting is concerned with reporting general-purpose information to users external to an entity in order to help them make sound economic decisions about the entitys performance and financial position while Management Accounting is that area of accounting concerned with providing financial and other information to management in an organization to enable them to carry out their planning, controlling and decision-making responsibilities. Other technical differences are shown in the table below: Financial Accounting Emphasis is on financial consequences of past activities Preparing financial accounting reports is mandatory especially for limited companies Financial accounting statements are required to be produced for the period of 12 months Covers the entire organization Objectivity and verifiability of data are emphasized
Principles Of Accounting - Assignment 1

Management Accounting Emphasis is on decisions affecting the future There are no legal requirements to prepare reports on management accounting No specific time span is fixed for producing financial statements. May be concerned with particular products or cost centres Relevance of items relating to decision making is emphasized

Principles Of Accounting - Assignment 1