Business and finance: What is the difference between managerial accounting and financial accounting?

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What is the difference between managerial accounting and

financial accounting?

Be specific - are there advantages to each?
Dec 13th, 2015

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What is the difference between managerial accounting and financial accounting?



Financial accounting has its focus on the financial statement which are distributed to stockholders, lenders, financial analysts, and others outside of the company. Courses in financial accounting cover the generally accepted accounting principles which must be followed when reporting the results of a corporation's past transactions on its balance sheet, income statement, statement of cash flow's, and statement of changes in stockholders' equity.

Managerial accounting has its focus on providing information within the company so that its management can operate the company more effectively.  Managerial accounting and cost accounting also provide instructions on computing the cost of products at a manufacturing enterprise. These costs will then be used in the external financial statements. In addition to cost systems for manufacturers, courses in managerial accounting will include topics such as cost behavior, break-even point, profit planning, operational budgeting, capital budgeting, relevant costs for decision making, activity based costing, and standard costing.


Management and financial accounting reports, while each used in different settings, provide their recipients with benefits that are unique to each format.

Management accounting reports provide estimates for what might happen in the future. A manager needs projections and would rather use estimates on what will happen than reports on what has already happened because of the ever-changing financial terrain in business. This type of accounting often benefits the future of a company.

Investors and tax professionals need hard facts based on numbers that already exist, so they can properly assess a company's performance. Financial accounting reports provide the precision these professionals need to gauge the solidity of a company.


Because financial accounting reports are for objective outside sources, they must abide by the generally accepted accounting principles (GAAP), according to Accounting for Management. This means that reports must be delivered in accordance with set ground rules to remain consistent and concrete every time.

For example, the GAAP requires a piece of land be assessed at its cost in the past (its historical cost), while if a company is thinking about purchasing a plot of land, management will want to see the current value of the land, along with projections for future value.


Management accounting and financial accounting both serve important roles within a business. Their differences make them significant in different ways, but equal in importance.

Managers must think about the future of the company, so management accounting is significant in planning ahead financially and thinking of ways to grow based on estimates of what will happen.

Financial accounting is significant in informing investors, tax professionals and creditors of a company's performance over a period of time, shedding valuable light on the past and present, according to an article on the Quick MBA website. Additionally, these reports are used to do a company's taxes, so they must be 100 percent accurate.

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Dec 13th, 2015

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