Managerial accounting and financial accounting are two of the most prominent branches of accounting. They both deal with processing information which is useful in decision-making; however, they have notable differences that distinguish them from each other.
Managerial accounting processes economic information to be used by management in making decisions.
Financial accounting involves the preparation of general-purpose financial statements used by various users in making informed decisions.
The differences between managerial accounting and financial accounting can be summarized according to the following bases of comparison:
Financial Accounting: Internal and external. General purpose financial statements can be used by external and internal users. However, they are prepared primarily for external users, such as the investors, lenders and creditors, and the government.
Managerial Accounting: Internal. The reports prepared in managerial accounting are strictly for use by internal users, i.e. the management.
Financial Accounting: Required. Financial accounting requires strict compliance with established accounting standards.
Managerial Accounting: Not required. Management accounting is not required to follow accounting standards since the only users are the members of the management.
Financial Accounting: Historical. Financial accounting processes historical information and summarizes them in the preparation of financial statements.
Managerial Accounting: Current and future. Management accounting deals with current problems of the company. Also, management accounting involves the preparation of budgets and forecasts.
Financial Accounting: Reliability, verifiability, and objectivity of financial information
Managerial Accounting: Relevance and timeliness, to be useful in helping management make business decisions
Financial Accounting: Mandatory. Financial accounting is required by law. Companies are mandated to furnish financial statements periodically.
Managerial Accounting: Optional. Management accounting is not mandatory. However, a company that does not use it will suffer great consequences.
Financial Accounting: General-purpose. Financial statements provide general information, addressing the common needs of its users.
Managerial Accounting: Special-purpose. The financial reports in managerial accounting address a specific issue or concern.
Financial Accounting: Concise. Financial statements present data in a standard summarized way.
Managerial Accounting: More detailed. Financial reports carefully detail all information that the management should consider in making specific decisions.
Financial Accounting: Sources within the company, i.e. the accounting records of the company
Managerial Accounting: Any source, both internal and external such as interest rates, political environment, economic and industry concerns, etc.
Financial Accounting: Financial statements are furnished periodically, usually monthly, quarterly, and/or annually.
Managerial Accounting: Financial reports in management accounting are prepared as the need arises.
|Basis / Category||Financial Accounting||Management Accounting|
|1. Users||Internal and external||Internal|
|2. Compliance with accounting standards||Required||Not required|
|3. Time orientation||Historical||Current and future|
|6. Purpose of reports||General-purpose||Special-purpose|
|7. Details of reports||Concise, standard||More detail|
|8. Sources of data||Internal||Internal and external|
|9. Frequency of reports||Periodically||As needed|
There have been arguments as to which between financial accounting and managerial accounting is more important, but is somewhat pointless. Each has its own purpose and use in the business environment.
In this article, we differentiated managerial and financial accounting. While financial accounting provides information to internal and external users following accepted accounting standards, management accounting focuses on providing information to internal users (the management) using different analytical decision-making approaches.