Most accounting tasks can be divided into financial accounting and managerial accounting. It is useful to describe the differences between these two aspects of accounting, since each one describes a distinctly different career path. In general, financial accounting refers to the aggregation of accounting information into financial statements, while managerial accounting refers to the internal processes used to account for business transactions. There are a number of differences between financial and managerial accounting, which are noted below. Show
AggregationFinancial accounting reports on the results of an entire business. Managerial accounting almost always reports at a more detailed level, such as profits by product, product line, customer, and geographic region. Financial accounting reports are more likely to be distributed to outsiders, while the results of managerial accounting are more likely to only be used by insiders. EfficiencyFinancial accounting reports on the profitability (and therefore the efficiency) of a business, whereas managerial accounting reports on specifically what is causing problems and how to fix them. Managerial accounting reports are more likely to be of use in improving operations, while financial accounting reports are used by outsiders to decide whether to invest in or lend to a business. Proven InformationFinancial accounting requires that records be kept with considerable precision, which is needed to prove that the financial statements are correct. Outside auditors rely on this information when auditing a firm’s financial statements. Conversely, managerial accounting frequently deals with estimates, rather than proven and verifiable facts. Reporting FocusFinancial accounting is oriented toward the creation of financial statements, which are distributed both within and outside of a company. Managerial accounting is more concerned with operational reports, which are only distributed within a company. StandardsFinancial accounting must comply with various accounting standards, whereas managerial accounting does not have to comply with any standards when information is compiled for internal consumption. SystemsFinancial accounting pays no attention to the overall system that a company has for generating a profit, only its outcome. Conversely, managerial accounting is interested in the location of bottleneck operations, and the various ways to enhance profits by resolving bottleneck issues. Time PeriodFinancial accounting is concerned with the financial results that a business has already achieved, so it has a historical orientation. Managerial accounting may address budgets and forecasts, and so can have a future orientation. TimingFinancial accounting requires that financial statements be issued following the end of an accounting period. Managerial accounting may issue reports much more frequently, since the information it provides is of most relevance if managers can see it right away. ValuationFinancial accounting addresses the proper valuation of assets and liabilities, and so is involved with impairments, revaluations, and so forth. Managerial accounting is not concerned with the value of these items, only their productivity. CertificationsThere is also a difference in the accounting certifications typically found in each of these areas. People with the Certified Public Accountant designation have been trained in financial accounting, while those with the Certified Management Accountant designation have been trained in managerial accounting. Pay LevelsPay levels tend to be higher in the area of financial accounting and somewhat lower for managerial accounting, perhaps because there is a perception that more training is required to be fully conversant in financial accounting. 3 Min. Read What is the Difference Between Financial and Managerial Accounting?
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. SYSTEMSFinancial 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 FOCUSFinancial 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. AGGREGATIONFinancial 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. EFFICIENCYA business’ profitability and efficiency are reported through financial accounting. Managerial accounting reports on what is causing a problem and how to fix that problem. TIMINGFinancial 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 INFORMATIONConsiderable 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. STANDARDSWhen 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 PERIODFinancial 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. VALUATIONFinancial 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 What are differences between management accounting and financial accounting?Managerial accounting focuses on an organization's internal financial processes, while financial accounting focuses on an organization's external financial processes. Managerial accountants focus on short-term growth strategies relating to economic maintenance.
How many of the following are differences between management and financial accounting?There are two primary differences between financial and management accounting. The first difference is that management accounting is presented to a company's internal community, while financial accounting is prepared for an external audience.
|
