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CMA Intermediate · Management Accounting · Introduction to Management Accounting

Which of the following is the primary distinction between management accounting and financial accounting?

Management accounting is meant for internal decision-making and has no mandatory format, while financial accounting is prepared for external users and must follow accounting standards and statutory presentation. Hence the first option is correct; the other options reverse or misstate the features of the two systems.

  1. AManagement accounting is prepared mainly for internal decision-making and need not follow statutory formats, whereas financial accounting follows prescribed standards for external usersCorrect
  2. BManagement accounting deals only with historical data, whereas financial accounting is entirely forward-looking
  3. CManagement accounting must be audited annually under the Companies Act, whereas financial accounting need not be audited
  4. DManagement accounting reports only monetary information, whereas financial accounting reports only non-monetary information

Explanation

Management accounting serves internal managers, is flexible in format and uses both financial and non-financial and forward-looking information. Financial accounting is for external users and follows accounting standards and statutory formats. The option reversing historical and forward-looking is wrong because management accounting is the one that is future-oriented.

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