Financial and managerial accounting are two popular accounting disciplines often used interchangeably. Although both these accounts majorly include numbers, they are different. As a business owner, you can get help from professionals from a CPA firm in Centennial, CO, to know the difference between the two. In this article, we will highlight the difference between financial and managerial accounting and how they differ. So, without any delay, let’s explore!
What is Financial Accounting?
Financial accounting can be described as a type of accounting that records transactions in the form of financial statements like income statements or balance sheets. Business owners and stakeholders review these financial statements to understand the company’s functioning. Through these, you can determine the financial position of your business. Based on these financial statements, further growth strategies are developed.
What is Managerial Accounting?
Managerial accounting is referred to as a branch of accounting that includes the process by which professionals can determine and track the financial data of your business. It becomes easier to identify problematic areas and find effective solutions through managerial accounting. In most cases, managerial accounting serves internal aspects only, as these reports benefit stakeholders and business owners only. Through managerial accounting, it becomes easier to make informed decisions.
Difference Between Financial and Managerial Accounting
Here is a quick difference between financial and managerial accounting:
|The purpose of financial accounting is external reporting for investors, stakeholders, and regulators.
|The purpose of managerial accounting is to assist management and decision-making within the organization.
|The prime audience is external stakeholders, including regulators, investors, and creditors.
|The prime audience includes executives, internal management, and heads of all departments.
|Reports generated are financial statements, including balance sheets and income statements.
|Reports generated are variance analysis, budgets, forecasts, and overall performance reports of all departments.
|The scope of financial accounting is the organization’s overall financial activities.
|It mainly focuses on major departments, products, and segments.
|Compliance with IFRS and GAAP
|Enjoy high flexibility internally
|Past performance and historical data.
|Planning, control for future periods, and Future-oriented
|The primary objective is maintaining financial health, position, and results.
|Assists in overall decision-making, planning, and cost control.
Both financial and managerial accounting is an integral part of a business. This article highlights key differences between the two.