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When it comes to financial accounting vs managerial accounting, the main differences are the manners of collecting, processing, and reporting information. Users of financial and managerial accounting information also have different goals in analyzing and interpreting this information. In this article, we’ll discuss how these two major branches of accounting differ along seven criteria. Financial accounting reports are distributed inside and outside of a business and are governed by GAAP and IFRS.

Financial accounting must follow certain standards in accordance with GAAP, which is a requirement for businesses based in the U.S. to maintain their publicly traded statuses. Managerial accounting is not intended for external financial accounting users and can be modified according to the company’s processes. Financial accounting reports are typically generalized and concise, and information is less revealing because they are available to outside parties.

Should You Consider Further Professional Qualifications in Finance or Accounting?

Financial accounting is really only concerned with the profitability of your business. It does give you some insight into the efficiency of your business, but if there’s a problem somewhere, financial accounting won’t be able to tell you where or how to fix it. Because managerial accounting deals with the parts rather than the whole, it is much more adept at identifying financial problems and how to fix them. Managerial accounting processes economic information to be used by management in making decisions. Financial accounting is concerned with knowing the proper value of a company’s assets and liabilities.

There are several different types of accounting–from cost auditing to public accounting–but two of the most common are managerial (sometimes referred to as management) accounting and financial accounting. Despite their similarities, managerial and financial accounting aren’t the same job. You’ll need to understand these differences to ensure you follow the right career path.

What is the Difference Between Financial and Managerial Accounting?

Reports produced by managerial accounting (e.g., operational reports) are only distributed internally to individuals within your business. One of the main functions of managerial accounting is to estimate future costs, such as production, marketing, inventory, shipping, and R&D. It helps you get a handle on what might occur in a few days, weeks, months, and years. Financial accounting requires strict adherence to rules and attention to detail while managerial accounting requires creativity to assess managerial needs and design reports to deliver the needed information.

• Therefore, it must comply with a set of accounting standards, such as general principles, liabilities, revenue, equity, etc.
• Financial accounting information is communicated through reporting, such as the financial statements.
• Financial accountants must conform to certain standards to maintain the company’s publicly traded status.
• Financial accounting must follow certain standards in accordance with GAAP, which is a requirement for businesses based in the U.S. to maintain their publicly traded statuses.
• Because managerial accounting is not for external users, it can be modified to meet the timely specific needs of its intended users.

Moreover, the ability to work collaboratively and communicate effectively is vital. Accountants often work in teams and must explain complex financial information in simple terms, making these skills indispensable for professional effectiveness and success. After mastering the basic principles of the profession, accountants can refine their focus to become experts in certain sectors, such as public accountancy, or even more specialized subsectors, such as government accountancy. In fact, an accounting degree can lead to any number of accountant, auditor, or analyst positions.