Management Vs Financial Accounting

The accounting practices that are carried out by any business are crucially important to the company itself. The business has some important choices to make as to which accounting practice they want to implement. The common choices will be between Financial and Managerial accounting.

Financial Accounting

The main responsibility of financial accounting is that the process involves compiling financial reports that encompass the entire business. This form of accounting will show the financial picture of how profitable the business is, which will depict its efficiency.

  • Information: The information that is provided by financial accounting is accurate and precise. It has to be as such to be able to withstand an audit if the tax department deems this is necessary.
  • Reports: The reports that are created in financial accounting are in the form of statements such as profit and loss statements. Information can be seen at a glance.
  • Practices: There are set standards that must be followed by financial accounting. These are generally accepted practices that all financial accountants should adhere to at all times.
  • Timing: The timing requirements for financial accounting will be based on the accounting cycle of the firm. For example, the year-end has to be compliant with tax obligations. The data produced with financial accounting shows the results of the business, and also has some historical value to it.

Managerial Accounting

The objective of managerial accounting is based on accounting practices that are more detailed compared to financial accounting. For example, financial accounting will show the figures for profit whereas managerial accounting will show profits broken down into specific categories such as:

  • Profits generated per product
  • Profits generated by customers
  • Profits generated by region

With this type of accounting practice, the company can identify weaknesses within the company then determine what steps are needed to correct them.

  • Information: The information provided with managerial accounting works more with estimates, which is far different from financial accounting.
  • Reports: The reports relied on managerial accounting are the operational reports which remain in the house and are not distributed for tax purposes.
  • Practices: The accountant that is performing managerial accounting does not have to conform to any accounting standards. This is because the information provided from this form of accounting remains within the business and is used for different purposes compared to financial accounting.
  • Timing: This is the opposite of financial accounting in that it deals with budgets and forecasts and is more geared towards the future.

As can be seen, there are some major differences between these two forms of accounting. They each have a great deal of value attached to them. Many companies will practice both forms because of what they can be used for to benefit the company.