Financial and Management Accounting

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Financial and Management Accounting
The purpose of accounting is to provide information that is needed for sound economic decision making.

The main purpose of financial accounting is to prepare financial reports that provide information about a firm's performance to EXTERNAL parties such as investors, creditors, and tax authorities. Financial accounting is performed according to generally accepted accounting principles guidelines to ensure that financial reports state the financial performance fairly and consistently.
The fundamental need for financial accounting is to reduce principal-agent problem by measuring and monitoring agents' performance and reporting the results to interested users.
Financial accounting is used to prepared accounting information for people outside the organization or not involved in the day-to-day running of the company.

Management accounting provides accounting information to INTERNAL parties like managers so they can make proper decisions to manage the business.



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