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Managerial vs. Financial Accounting


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.

What's in Here

In this article, we will differentiate managerial and financial accounting in terms of users, compliance with standards, purpose, time orientation, frequency, and more.

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:

Difference between Managerial and Financial Accounting

1. As to Users

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.

2. As to Compliance with Accounting Standards

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.

3. As to Time Orientation

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.

4. As to Emphasis

Financial Accounting: Reliability, verifiability, and objectivity of financial information

Managerial Accounting: Relevance and timeliness, to be useful in helping management make business decisions

5. As to Necessity

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.

6. As to Emphasis

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.

7. As to Level of Detail

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.

8. As to Source of Data

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.

9. As to Frequency of Reports

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.

In Summary

Basis 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
4. Emphasis Reliability Relevance
5. Necessity Mandatory Optional
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.

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