ContentONLINE MASTER OF PUBLIC HEALTHManagerial Accounting vs, Financial AccountingManagerial Accounting ReportsCertified Management Accountant vs. Certified Public Accountant Financial accounting relies heavily on financial statements that have been audited by an independent third party. Managerial accounting, on the other hand, relies more on information that has been proven to be accurate through internal testing and analysis. […]

financial accounting vs managerial accounting

Financial accounting relies heavily on financial statements that have been audited by an independent third party. Managerial accounting, on the other hand, relies more on information that has been proven to be accurate through internal testing and analysis.

financial accounting vs managerial accounting

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Compliance with established formats is vital for financial accountants, who must prepare reports for shareholders and potential investors as well as executives. Managerial accountants, however, generally prepare their reports for internal audiences. Organizations can use both financial accounting and managerial accounting to develop comprehensive strategies to maintain and grow their business. Financial accounting takes the facts and figures that have already occurred and reports them in an easy-to-understand format. When you read a financial accounting report, you’re seeing what happened yesterday, last week, or last year . Managerial accounting deals with budgetsand forecasts and is geared more toward the future. Yes, it can provide insight into the present situation of your business, but it rarely delves into the past.

Provides financial information internally to executives, managers and employees. On the other hand, financial accounting focuses on external users such as lenders, investors and regulatory agencies. The purpose and the way the financial statements are prepared are dependent on who uses the information. The reports for internal users will be more flexible and focus on a specific purpose. Meanwhile, the data for external users require accountants to follow specific standards and rules.

Managerial Accounting vs, Financial Accounting

These include cash flow statements, income statements and balance sheets that will be viewed by external investors and stakeholders. Industry regulators and agencies like the Securities and Exchange Commission also view the work of financial accountants. As a result, these financial statements must adhere to all regulatory guidelines and the Generally Accepted Accounting Principles . Managerial accounting is a process that provides financial and statistical information to company managers so they can make informed decisions about the business. The focus of managerial accounting is on internal users, unlike financial accounting which focuses on external users such as investors and creditors. 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.

Starting with a solid knowledge base and skill set will help students keep pace as technology and financial regulations evolve. If you only ever looked at one side of that coin, your knowledge of the company would be incomplete. Ideally, your business needs both sides — managerial accounting and financial accounting — to be successful. Financial accounting is helpful in the proper record keeping of numerous business transactions. Further, it facilitates the comparison of the performance of two periods of an entity or between the two entities.

Managerial Accounting Reports

The information created through financial accounting is entirely historical; financial statements contain data for a defined period of time. Managerial accounting looks at past performance and creates business forecasts. Managerial accounting focuses on an organization’s internal financial processes, while financial accounting focuses on an organization’s external financial processes. Both financial accounting and managerial accounting seem similar and almost serve the same purpose but glaring differences exist. The following are areas in which financial and managerial accounting differ and what sets them apart.

  • Managerial accounting focuses on detailed reports like profits by product, product line, customer and geographic region.
  • Since these internal reports are not circulated outside the company, managerial accountants don’t need to adhere to GAAP or other third-party compliance rules.
  • Professionals in both roles rely on accurate financial data to support their reporting and analysis.
  • Managerial finance combines economic principles with accounting practices to help executives and management teams make smart business decisions.

Conventionally, financial accounting aims to ascertain information regarding the performance, profitability and position of the organization based on the business activities undertaken. But recently information relating to cash flows and earning per share is also provided, with the help of a financial statement. Common non-profits include charities, social service organizations, churches, and advocacy groups. The accounting for these organizations is more focused on how money is used to advance the purpose of the organization. In addition, nonprofits can apply to the IRS for non-taxable status, commonly under either IRC Section 501 or 501.

Video Explaining the Differences

This information can be used for short-term decision-making, such as deciding which product to make or how to price it. It can also be used for long-term strategic planning, such as determining which new products to develop or which markets to enter.

This allows the board of directors, stockholders, potential investors, creditors and financial institutions to see how the company has performed during a specific period of time in the past. If a business is considered a publicly-traded company on the stock market, the reports must be made part of the public record. In a financial accounting course, students learn how to prepare, read and analyze financial statements.

Managerial accounting is interested in the systems of your business and reducing problems and streamlining operations therein. For example, managerial accounting would examine your productionline, calculate costs, and estimate ways to reduce expenses. Financial accounting, on the other hand, is strictly regulated by a vast number of basic, intermediate, and advanced accounting financial accounting vs managerial accounting standards. The fact that the U.S. tax code contains more than 73,000 pages is indication enough of the high standards set on financial accounting. Its aim is to record financial transactions in the accounts, in a systematic manner, that facilitates the preparation of financial statements. However, the only concern of financial accounting is profitability on the business.

Which should be taken first, financial accounting or managerial accounting?

To pursue a career in business leadership, it is recommended to take managerial accounting after financial accounting. Financial accountants have a solid knowledge base and skill set in accounting with a good understanding of debit, credit, and financial reporting, which is helpful when preparing managerial financial reports.