The Difference Between Financial and Managerial Accounting: A Comprehensive Guide

Financial and managerial accounting are two distinct branches of accounting that have different purposes. Financial accounting is focused on external financial processes, while management accounting is concerned with internal financial processes. The key difference between the two lies in the intended users of the information they provide. Financial accounting is used to create financial statements that are distributed both inside and outside a company, while management accounting is used to create operational reports that are only distributed within a company.

Financial accounting must adhere to certain standards set by GAAP, which is a requirement for companies based in the United States. It is important for the management of a company, as it helps to keep track of revenues and expenses, and provides managers and investors with financial data that can be used to make important business decisions. Financial accounting statements are completely historical and are based on a defined period of time. They report on the profitability of a company. Management accounting focuses on short-term growth strategies related to economic maintenance.

It provides detailed reports such as earnings by product, product line, customer, and geographic region. Management accounting also focuses on problem solving, designing strategies to make the company more profitable and efficient in the long term. Financial accounting analyzes the entire business while management accounting reports at a more detailed level. Financial statements are often used as a starting point for creating a budget, but budget estimates are generally created based on the needs and expectations of the managers who are creating that budget.