Table of Contents
- What Is Financial Accounting?
- What Is Managerial Accounting?
- Overlaps Between Financial Accounting and Managerial Accounting
- Differences Between Financial Accounting and Managerial Accounting
- Systems
- Reporting focus
- Frequency
- Standards
- Period
- Valuation
- Is Managerial Accounting More Difficult Than Financial Accounting?
- The Bottom Line
Accounting is crucial in ensuring that a company fulfills its goals and updates strategies to its needs. Through accounting branches like financial accounting and managerial accounting, companies are able to evaluate their financial status, assess the financial impact of business decisions, and provide deep insights into revenues, expenses, profits, liabilities, and other financial data.
If you want to learn more about financial accounting vs. managerial accounting and have some of the most common questions answered, such as “Is managerial accounting more difficult than financial accounting?”, “What are the similarities between financial accounting and managerial accounting?”, stay with us.
What Is Financial Accounting?
Financial accounting is responsible for making detailed reports of a company’s financial statements and communicating financial information to company leaders and shareholders. So, financial statements display a company’s performance over a set period, allowing internal and external bodies to see how well it is performing.
Some of the typical duties of financial accountants include the following:
- Handling data: Financial accountants are responsible for gathering and monitoring a company’s financial data (sales revenue, cost of goods).
- Preparing financial statements: They also prepare different financial documents (income statements, balance sheets, and cash flow statements) for stakeholders and investors.
- Complying with regulations: Financial accountants must ensure they are ethical in data management, accurate in statement preparation, and handle funds legally. Therefore, financial accountants must understand and comply with federal and state regulations and the industry’s GAAP guidelines.
They can also prepare budgets and advise management.
What Is Managerial Accounting?
Managerial accounting encompasses identifying, analyzing, interpreting, and communicating data to help managers make decisions and achieve business goals. Managerial accountants help businesses achieve their goals in many ways, such as:
- Determining income
- Valuing inventory
- Identifying opportunities
- Ensuring businesses run smoothly
- Forecasting trends
- Preparing financial and transactional data
- Analyzing the cost of products or services
- Focusing finance allocation
- Isolating efficiency issues that impact the company’s bottom line
- Set functional, business, and corporate strategies.
Overlaps Between Financial Accounting and Managerial Accounting
While there are key differences between financial and managerial accounting, there are many similarities too, some of which are:
- Quantifying the results of business activity and transactions.
- Dealing with expenses, assets, liabilities, cash flows, and financial statements.
- Preparing the reports based on the same database.
- Determining and measuring cost.
So, both accounting branches use analytics to collect data and develop insights and strategies.
Furthermore, both branches typically require at least a bachelor’s degree in accounting or a related field. Still, they need certifications, such as getting a CPA (certified public accountant) license to expand job opportunities. And those wanting to pursue managerial accounting should get a CMA (certified management accountant) credential.
Differences Between Financial Accounting and Managerial Accounting
Managerial accounting and financial accounting have many differences, stemming from financial accounting looking at the company as a whole and managerial accounting looking at specific management issues and how to solve them.
While many factors determine the salary (location, experience, certification, education), another difference between financial accountants and managerial accountants is the salary. Glassdoor reports an average salary of $69,324 for financial accountants and an average base salary of $56,507.
Some of the fundamental differences between financial accounting and managerial accounting are:
Systems
Financial accounting primarily focuses on the outcome of generating a profit, not the overall system. On the contrary, managerial accounting focuses on the location of bottleneck operations (operations working at their maximum capacity, such as can’t accept additional work) and resolving the bottleneck issues to increase sales and profits.
Reporting focus
Financial accounting reports focus on making financial statements within a specific time frame and are meant for internal and external (investors, financial institutions, regulators) distribution within a company. Managerial accounting reports, on the other hand, focus on making forecasts, are more concerned with operational reports, and are usually distributed to managers and senior employees.
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Frequency
Because managerial accounting focuses on operational reporting, managerial accountants report more frequently or whenever stakeholders want to make a decision and don’t follow a specific period. On the contrary financial accountants produce financial statements at the end of an accounting period, which can be monthly, quarterly, or annually.
Standards
When managerial accounting focuses on internal consumption, there’s no need to follow a set of standards, whereas financial accounting is meant for internal and external consumption. Therefore, it must comply with a set of accounting standards, such as general principles, liabilities, revenue, equity, etc.
Period
While financial accounting looks at the past by analyzing financial information, managerial accounting looks at the future by examining financial information to make forecasts. However, this doesn’t mean that financial accounting only looks to the past, as investors and creditors use financial statements to make their own forecasts.
Valuation
Financial accounting focuses on the overall value of a company’s assets and liabilities, whereas managerial accounting analyzes the assets and liabilities to understand a company’s profit and productivity.
Is Managerial Accounting More Difficult Than Financial Accounting?
Managerial accounting is generally considered to be easier than financial accounting. The main reason for that is that managerial accounting mainly involves budgeting and forecasting, and it’s meant for internal use. In contrast, financial accounting must prepare reports for internal and external users (investors, lenders, regulators, creditors) and comply with GAAP standards.
However, this doesn’t make managerial accounting an “easy” branch of accounting, as it requires experience and considerable training to thoroughly understand what factors influence a business’s success or failure.
The Bottom Line
Both financial accounting and managerial accounting deal with financial information, however, with a different approach. On the one hand, financial accounting aims to provide financial statements, including measuring a company’s performance to assess its financial health. Conversely, managerial accounting aims to provide financial information so managers can make decisions aligned with their business strategies. Though there are many differences between the two, utilizing them can ensure that a company gets accurate financial statements and forecasts for a more productive and profitable future.
If becoming a financial accountant or managerial accountant sounds like something you’ll want to pursue, check out our program, where you’ll get the opportunity to learn about quantitative data analysis, international trade and finance, labor-market analysis, public finance, and more.
