Similarities Between Management Accounting & Financial Accounting

Financial Accounting
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Financial accounting is used to generate reports and statistics to detail a company's financial health to external interests. These external parties include stockholders, silent partners and mortgage holders. It enables those external stakeholders to see how their investment is faring and can help a current stakeholder decide to remain a stakeholder, invest more into the company or remove his assets and invest elsewhere.

Managerial Accounting
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Managerial accounting is completed for internal stakeholders, such as the management team. Managerial accounting is used for the day-to-day operations of the business. This information would be used to determine sales prices, employee bonuses, raises for employees and other general operation decisions.

Similarities
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Both financial and managerial accounting methods present the general health of a business. Financial accounting reports are more formal and have a strict format for presentation to external stakeholders. Managerial accounting reports are more informal since they are used in-house. But even with these differences, both methods allow the reader to make a conclusion on the health of the business, allowing them to make financial decisions that must be made.

Explanation of the Similarities and Differences Between Financial and Managerial Accounting

Similarities
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Financial accounting and managerial accounting draw on the same set of items. These are financial accounts, such as assets, liabilities, expenses, revenues and equity. In managerial accounting, corporate personnel attempt to reflect on a company's manufacturing effectiveness and rein in costs. Likewise, financial accounting initiatives help companies monitor income statement items, especially material costs and administrative expenses. Employees who engage in both disciplines generally share a similar educational background. Most financial and managerial accountants hold a college degree in a business-related field, according to the U.S. Bureau of Labor Statistics. Typical coursework includes cost analysis, accounting, economics and investment analysis.

Differences
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Managerial accounting is also known as management accounting or cost accounting. This discipline has an inward orientation, indicating to business unit leaders the best way to expand operations. Department heads also focus on cost accounting to understand factors that affect increases in factory overhead, among other expenses. Factory overhead consists of fixed production costs, such as utilities and rent. Unlike managerial accounting, financial accounting has an outward perspective. This corporate function enables top leadership to find ways to run efficient businesses and lay investor concerns to rest. Securities exchange participants generally review corporate financial records to gauge factors, such as solvency and liquidity.

Significance
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Managerial accounting helps production foremen find methods to fully exploit manufacturing resources. Production assets include equipment, machinery and state-of-the-art technological tools, such as computer-aided manufacturing software and warehouse management applications. Cost accounting also allows rank-and-file personnel to curtail excessive spending, making sure business units do not breach their budget deficit ceilings. Financial accounting enables companies to record operating events and present performance data at the end of a specific period, such as a fiscal year or quarter.

Financial Reporting
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In the global marketplace, top management generally publishes the results of financial and managerial accounting initiatives. These results may attract external readers, such as investors, or an internal corporate audience. Accounting reports include budgets, disclosure notes, balance sheets and statements of profit and loss. Other financial data summaries include statements of shareholders' equity and statements of cash flows. A statement of shareholders' equity is also called a statement of retained earnings or report on equity capital.

What Are the Similiarities Between Management Accounting & Financial Accounting?

Accounting Information System

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Accounting information system knowledge is important for both types of accountants. The management accountant needs to use an accounting information system to present data to managers, while the financial accountant uses the system to audit financial information to make sure it is correct. Many companies no longer use paper records to monitor financial transactions, so both types of accountants need to understand how an accounting information system operates.

Presentation Factors
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Information must be relevant and timely. The management accountant needs to make sure that the information that managers receive is useful when making budgetary decisions, and it arrives early enough for the managers to use it to create a budget. The financial accountant needs to make sure that a reasonably knowledgeable investor or a government regulator has sufficient information to make a decision, and that the financial report is available on time according to federal law.

Comparability
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Information must allow the user to make a comparison between different firms. The management accountant focuses on benchmarks, so the managers know how well a company's internal processes function compared to its competitors. A financial accountant needs to create a report that allows the user to make a comparison with a report from a different company, since a financial report should include data that allows an investor to decide which company is best to invest in to receive the greatest return.

Internal Controls
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Internal controls are necessary in both types of accounting. The management accountant helps managers design and implement internal controls, ensuring that the company does not have money or assets stolen. A financial accountant checks internal controls during an audit, making sure that the internal controls are effective and that the company is following its established cash management guidelines.

Training and Certification

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Both types of accounting often require the accountant to undergo formal training at a university. An undergraduate accounting program may not require a student to specialize in either management or financial accounting, and frequently includes courses from both areas. Both management and financial accountants commonly hold the Certified Professional Accountant, or CPA, designation, which requires the applicant to take undergraduate business and accounting courses, but does not require specialization in management or financial accounting.