Posted: December 25th, 2022

Difference between financial and managerial accounting

Difference between financial and managerial accounting

Introduction

Financial and managerial accounting are two different branches of accounting that contribute immensely to a business. Financial accounting deals with recording and analyzing financial transactions and presenting them in the form of financial statements. Managerial accounting focuses on analyzing and interpreting information and presenting operational reports. Although the two share a few similarities, they operate differently.

Scope of work

Financial and managerial accounting have different scopes of work. Financial accounting focuses entirely on profits and financial transactions of the whole company, while managerial accounting is segmented. It breaks down information and statistics to find out profit made per geographic area, number of sales for every product and the customers. In addition, managerial accounting is based on estimates whereas financial accounting contains facts.

Financial accounting concentrate on quantitative analysis exclusively. It focuses on calculating the total number of assets, liabilities, income among others. Managerial accounting looks at both quantitative and qualitative analysis. It focuses on numbers, systems, problems and bottleneck operations, and figures out how to maximize profits by solving these problems.

Rules and regulations

There are regulations that personnel working in financial accounting should adhere to. There is a defined standard and format that should be followed when preparing financial statements. It also has a time frame, for example, they should be prepared after every quarter or financial year. Managerial accounting does not have any regulations, operational reports are produced frequently. They do not have a specific layout or design.

Purpose

Managerial accounting aid in strategizing and decision making within the company.  For instance, if reports indicate the demand in the market is more than what the company produces. They may opt to hire more staffs to increase the level of production or outsource. Financial accounting depicts the financial situation of a company. It helps establish how much profit or loss a company is making and its worth.

Target audience

Financial accounting is both for internal and external use. Financial statements are presented to stakeholders, tax collectors, investors, lenders among others. Managerial accounting is only for internal use. Operational reports are used by high profile individuals who control and manage the business such as directors, managers or chief executive officers.

Conclusion

In conclusion, managerial accounting differs from financial accounting. Financial accounting deals with the analysis of financial transactions of a business to identify its financial situation, while managerial accounting analyzes information that helps in decision making.  Not only do the two have different scopes of work and regulations but also their target population and usage are not the same.

References

Shillinglaw, Gordon, and Jo Campling. “Managerial cost accounting.” (1982).

Raiborn, Cecily A., Jesse T. Barfield, and Michael R. Kinney. Managerial accounting. St Paul/Minneapolis, MN: West Publishing Company, 1996.

Dhaliwal, Dan S., Gerald L. Salamon, and E. Dan Smith. “The effect of owner versus management control on the choice of accounting methods.” Journal of accounting and economics 4.1 (1982): 41-53.