Financial Accounting VS Managerial Accounting
Financial accounting and managerial accounting are two of the largest accounting disciplines.
Although they are similar in some ways, they are distinctly different.
The key differences centre around accounting standards, target audience and compliance.
Having said that, they both play an integral role in any organisation.
Financial Accounting
Financial accounting focuses on providing financial statements to those outside the company. These include investors, creditors, stakeholders, industry regulators, and so on.
Financial accounting has an entirely historical orientation providing financial statements that contain data for a specific period of time.
Financial statements produced through financially accounting demonstrate a company's performance and financial health. As a result, financial accounting reports must be highly regulated. This is because the reports are released for public consumption and are usually highly anticipated by investors.
Additionally, financial accounting has to comply with various accounting standards, therefore, it is approached with more precision.
Managerial Accounting
Managerial accounting focuses on operational reporting. Unlike financial accounting, the reports are designed to be shared within the company.
The managerial accounting reports disclose details about profits by product, product line, geographics and customers, as well as, specific managerial needs.
One key difference between financial and managerial accounting is that managerial accounting looks specifically at what problems there are and how to fix them. Moreover, managerial accounting has a future orientation and can address future forecasts and budgets.
Managers also have the choice to chose the information they need and do not have to comply with any standards. Also, reports in managerial accounting are much more frequent, whereas, in financial accounting, reporting is regarding a particular time frame.
The Importance of Both
It is understandable that there is more precision and constraint regarding financial accounting as they have to comply with various accounting standards. More importantly, financial statements determine whether or not an investor makes an investment, and investors are key players in a company's growth.
However, both styles of accounting are vitally important.
Managerial accounting focuses on the areas that financial accounting does not, like drawing up and implementing strategic plans, creating budgets and fixing issues within the company.
Despite the differences, they are equally important for the growth of any business.
