What is the difference between financial accounting and management accounting

Financial accounting and management accounting may share some key similarities, but they also have a variety of differences. Suffice to say, they are not one in the same.

What is Managerial Accounting?

According to Investopedia, managerial accounting is the practice of identifying, measuring, analyzing, interpreting, and communicating financial information to managers for the pursuit of an organization’s goals.

  • It involves the presentation of financial information for internal purposes to be used by management in making key business decisions.
  • The presentation of managerial accounting data can be modified to meet the specific needs of its end-user.
  • Managerial accounting encompasses many facets of accounting, including product costing, budgeting, forecasting, and various financial analysis.

What is Financial Accounting?

Also according to Investopedia, financial accounting is a specific branch of accounting involving a process of recording, summarizing, and reporting the myriad of transactions resulting from business operations over a period of time. These transactions are summarized in the preparation of financial statements, including the balance sheet, income statement and cash flow statement, that record the company’s operating performance over a specified period.

Financial accounting is the framework that dictates the rules, processes, and standards for financial recordkeeping.

  • Financial reporting occurs through the use of financial statements such as the balance sheet, income statement, statement of cash flow, and statement of changes in shareholder equity.
  • Financial accounting may be performed under the accrual method (recording expenses for items that have not yet been paid) or under the cash method (only cash transactions are recorded.)

Differences between managerial accounting and financial accounting

 Investopedia further describes the differences between these terms in the following ways:

  • Financial accounting differs from managerial (or cost) accounting as financial reporting is more for reporting to external parties while cost accounting is more for strategic planning internally.
  • Techniques used by managerial accountants are not dictated by accounting standards, unlike financial accounting. This differs from financial accounting, which produces and disseminates official financial statements for public consumption that conform to prevailing accounting standards.

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If you need help with financial and/or managerial accounting for your organization, we can help. The team of dedicated CPAs at Hughes, Snell & Co., PA, have years of experience in helping clients of all sizes with all of their accountancy needs. For more information or to schedule a free, no-cost consultation, call our office today to get started.