How does accounting and financial management differ from each other?

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What is the Difference Between Financial and Managerial Accounting?

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December 27, 2019

The difference between financial and managerial accounting is that financial accounting is the collection of accounting data to create financial statements, while managerial accounting is the internal processing used to account for business transactions.

The certification for each of these types of accounting is different as well. People who have been trained in financial accounting have a Certified Public Accountant designation, while those with a Certified Management Accountant designation are trained in managerial accounting.

The perception that more training is required for financial accounting might be reflected in the higher pay rates of financial accountants over managerial accountants.

The following categories also show the differences between financial and managerial accounting.

SYSTEMS

Financial accounting only cares about generating a profit and not the overall system of how the company works. Conversely, managerial accounting looks for bottleneck operations and examines various ways to enhance profits by eliminating bottleneck issues.

REPORTING FOCUS

Financial accounting is focused on creating financial statements to be shared internal and external stakeholders and the public. Managerial accounting focuses on operational reporting to be shared within a company.

AGGREGATION

Financial accounting looks at the entire business while managerial accounting reports at a more detailed level. Managerial accounting focuses on detailed reports like profits by product, product line, customer and geographic region.

EFFICIENCY

A business’ profitability and efficiency are reported through financial accounting. Managerial accounting reports on what is causing a problem and how to fix that problem.

TIMING

Financial statements are due at the end of an accounting period, while managerial reports may be issued more frequently, to provide managers with relevant information they can act on immediately.

PROVEN INFORMATION

Considerable precision is needed to prove that financial records are correct. Financial accounting relies on this accurate data for reporting, while managerial accounting frequently deals with estimates opposed to proven facts.

STANDARDS

When managerial accounting is made for internal consumption there is no set of standards to compile that information. On the other hand, financial accounting must follow various accounting standards.

TIME PERIOD

Financial accounting looks to the past to examine financial results that have already been achieved, so it is historically focused. Managerial accounting looks to the future with forecasting.

VALUATION

Financial accounting is concerned with knowing the proper value of a company’s assets and liabilities. Managerial accounting is only concerned with the value these items have on a company’s productivity.

This article will also discuss:

Does Managerial Accounting Follow GAAP?

NOTE: FreshBooks Support team members are not certified income tax or accounting professionals and cannot provide advice in these areas, outside of supporting questions about FreshBooks. If you need income tax advice please contact an accountant in your area.

Does Managerial Accounting Follow GAAP?

Financial accounting reports are distributed inside and outside of a business and are governed by GAAP and IFRS. The external publication of financial statement makes it very necessary to follow regulation to provide correct information.

Managerial accounting reports are shared internally only and are, therefore, not subject to such rules and regulations and are not required by laws to follow any accounting standard.

RELATED ARTICLES

Both accounting and finance lead to lucrative job prospects in growing fields, and both involve managing money and financial documents. However, the two careers differ in several ways, as will be discussed below.

Understanding the difference between accounting and finance can help students who are trying to decide which degree will best meet their interests and career goals. This page explores the differences between accounting and finance degrees, including potential career paths and salary opportunities for each.

Accountants create financial reports and record financial transactions. For example, public accountants prepare tax returns for individuals and businesses, managerial accountants analyze an organization's financial health, and forensic accountants investigate financial documents to uncover illegal activities. In general, accountant jobs emphasize recording and reporting the flow of money through financial statements.

FINANCIAL MANAGERS AND FINANCIAL ADVISORS, FOR INSTANCE, OVERSEE AN INDIVIDUAL'S OR ORGANIZATION'S ASSETS AND LIABILITIES, HELPING CLIENTS REACH THEIR FINANCIAL GOALS.

Professionals in finance focus less on reporting and more on managing an organization's money. They research and direct an organization's financial transactions, acting as money managers. Financial managers and financial advisors, for instance, oversee an individual's or organization's assets and liabilities, helping clients reach their financial goals.

Both accountants and finance professionals work for financial services organizations, businesses, and government agencies. However, they provide different services for their clients. For instance, while you can visit an accountant for help with your taxes, you might visit a financial advisor to help save for retirement. Additionally, while organizations rely on accountants to track cash flow and ensure compliance with tax regulations, they may turn to finance professionals to manage monetary resources.

Top Online Programs

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Education Requirements and Skills

Accounting majors often take finance classes, and finance majors usually take accounting classes. However, prospective students should understand the difference between accounting and finance degrees, including the educational requirements and skills needed for each career path.

Many accounting careers require a bachelor's degree for entry-level positions. In addition, Certified Public Accountants (CPAs) must complete 150 postsecondary credits to qualify for a CPA credential -- the equivalent of earning a bachelor's degree and a master's degree in accounting. A master's also helps accountants pursuing management-level careers in their field.

Similarly, a bachelor's in finance meets the entry-level requirements for many finance job titles, including financial analyst, financial examiner, and personal financial advisor. Professionals seeking career advancement -- particularly financial managers -- often benefit from a master's degree.

Accounting and finance jobs both require a good eye for detail, strong analytical abilities, and excellent communication skills to provide information to clients.

Careers

The available career paths for accounting and finance graduates highlight the differences between accounting and finance. The lists below describe a few common job titles in each field.

Careers in Accounting

• Certified Public Accountant: CPAs create financial documents for public disclosure, including tax returns and balance sheet statements. They may work for individuals, corporations, and government agencies. CPAs must complete a licensure process to earn this title -- licensing requirements differ by state.
• Forensic Accountant: Forensic accountants investigate financial documents to uncover illicit activities, including tax fraud, embezzlement, and other illegal financial transactions. Many forensic accountants work for law enforcement agencies and testify as expert witnesses during trials.
• Management Accountant: Management accountants analyze an organization's financial documents to provide information for business managers. They evaluate budgeting goals, audit financial performance records, and plan for business expenses.

Careers in Finance

• Fund Manager: Fund managers oversee a fund's portfolio, its investment strategies, and its trading activities. They often manage pensions or mutual funds and receive a percentage of the fund's profits as part of their compensation.
• Risk Analyst: Also known as risk managers, these workers attempt to limit the damage caused by financial loss or market changes. They apply risk analysis techniques to measure an organization's financial risk and use strategies to manage exposure to financial harm.
• Portfolio Manager: Also called investment managers, these professionals create and apply investment strategies for clients, including individual investors and organizations. They analyze market performance to maximize returns for their clients.

Is Accounting Right for Me?

Is an accounting degree a good fit for your skills and interests? Accountants pay close attention to detail and possess strong analytical abilities. If you answer yes to the following questions, there's a good chance you might thrive in many accounting careers.

• Are you able to carefully follow rules?
• Are you accurate and reliable?
• Do you have a strong attention to detail?
• Are you good with numbers?
• Do you thrive when you have a routine?
• Do you have strong analytical skills?

Take the Next Steps

• Explore Accounting Degrees: Learn more about accounting degrees -- including bachelor's and master's degrees in accounting -- and admission strategies for top accounting programs.
• Explore Accounting Careers: Research career paths for accounting graduates, including management accountants, forensic accountants, and CPAs. Learn about the salary potential and projected growth in accounting.
• Explore Accounting Jobs: Find accounting jobs that fit your skills by visiting the Accounting.com jobs board, which posts openings from across the country.

What is the difference between financial and accounting?

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