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Partnership. The main differences between financial and management accounting

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Partnership is a type of business organization that an associate with two to twenty persons. The main reason for start this kind of business is earning profit.


  • Capital. If there are more than one owner all the partners have put their money to the business. When the investment is increasing the profit also increase.
  • Easy to establish. There are limited external rules and regulation due to start the business. Therefore, startup cost is very low.
  • Can make wish decision. To make decisions it is better two heads than one.
  • Flexibility. When there is a few number of persons, the rate of occurring problems is low.
  • Shared responsibility. The responsibility of the business can be shared among the partners. The advantage is that the responsibility of the running the business will be shared among the partners.


  • Unlimited liabilities. When the business earns, lost or profit all partners must take that risk. That means all parties have to take the liability and financial risks of the business.
  • Disagreement between the partners. When doing the business obviously raise the disagreement between the partners. Most of the disagreements occur due to the decision making.
  • Profit sharing. Profit that business gain has to share equally among the partners. Therefore, one party will get low profit.
  • Can’t take own decisions. Inhere only one person can’t take all the decisions. Everyone should discuss and will get the decisions.
  • Doesn’t have legal personality. The business can’t act as legal person in front of low.
  • Limited company. Limited company is the company which has legal personality. Those companies can act as legal person in front of the law.

There are two types of limited companies:

  1. Private limited company
  2. Public limited company


  • Limited liabilities. Owners don’t have to use their own money to pay debts.
  • Higher investment. Company can raise their investment by issuing shares. When the investment increase due to that profit will also increase.
  • Tax advantage. Taxed on company profit. That means owners don’t have to pay tax individually.
  • Legal personality. The company can act as legal person in front of the law.
  • Long life time. The owner’s death and illness won’t affect to the running of the business operations.


  • Profit sharing. Annual profit has to share among the shareholders.
  • Accounts are not private. Each year they have to publish their accounts records to the public.
  • More paper works. When establishing the company there are lots of paper works to do and those are more complex.
  • High setup cost. When the business start owners have to bear high amount of setup cost.
  • Lack of control. The board of director will make all the decisions belonging to business operations. Therefore one shareholder can’t take the control and the power of the company.

According to above strengths and weaknesses I like to suggest Mr. Fernando and Mr. Perera to start up limited company. Because limited company can rise more funds and also it has legal personality. Legal personality which means the company can act as legal person in front of the law. There are have limited liability therefore there is no risk for the owners’ personal property. Due to that they have more protection under limited company than partnership. Therefore, it is more suitable to start a limited company.

The main distinctions/ differences between financial and management accounting

Financial accounting

Financial accounting is the process of recording and summarizing the company financial resource for use of the both internal and external parties.

Management accounting

Management accounting is the process of preparing reports and accounts to gather information. those information internal parties use for making decisions.


  • Purpose
  • The main purpose of financial accounting is preparing the reports and accounts for use of both internal and external parties. Those reports show company financial position to external parties who has interested about the company.

    The main purpose of management account is preparing the reports and accounts for use of internal parties. Those records they use to make decisions for company wellbeing.

  • Time period
  • Financial accounting reports can prepare quarterly or annually according to the financial accounting standard.

    There is no actual time period. When the management wants to get the decisions for business operations they well prepare management accounts.

  • Users
  • Both the internal and external parties use these reports, such as, managers, creditors, stakeholders, employees, investors.

    Only internal parties use those reports such as, managers and directors.

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