What is the Difference Between Financial and Managerial Accounting?

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The difference between financial and managerial accounting is that financial accounting is the collection
of accounting data to create financial statements, while managerial accounting is the internal processing
used to account for business transactions.

The certification for each of these types of accounting is different as well. People who have been trained
in financial accounting have a Certified Public Accountant designation, while those with a Certified
Management Accountant designation are trained in managerial accounting.

The perception that more training is required for financial accounting might be reflected in the higher
pay rates of financial accountants over managerial accountants.

The following categories also show the differences between financial and managerial accounting.

SYSTEMS

Financial accounting only cares about generating a profit and not the overall system of how the
company works. Conversely, managerial accounting looks for bottleneck operations and examines
various ways to enhance profits by eliminating bottleneck issues.

REPORTING FOCUS

Financial accounting is focused on creating financial statements to be shared internal and external
stakeholders and the public. Managerial accounting focuses on operational reporting to be shared
within a company.

AGGREGATION

Financial accounting looks at the entire business while managerial accounting reports at a more detailed
level. Managerial accounting focuses on detailed reports like profits by product, product line, customer
and geographic region.
EFFICIENCY

A business’ profitability and efficiency are reported through financial accounting. Managerial accounting
reports on what is causing a problem and how to fix that problem.

TIMING

Financial statements are due at the end of an accounting period, while managerial reports may be
issued more frequently, to provide managers with relevant information they can act on immediately.

PROVEN INFORMATION

Considerable precision is needed to prove that financial records are correct. Financial accounting relies
on this accurate data for reporting, while managerial accounting frequently deals with estimates
opposed to proven facts.

STANDARDS

When managerial accounting is made for internal consumption there is no set of standards to compile
that information. On the other hand, financial accounting must follow various accounting standards.

TIME PERIOD

Financial accounting looks to the past to examine financial results that have already been achieved, so it
is historically focused. Managerial accounting looks to the future with forecasting.

VALUATION

Financial accounting is concerned with knowing the proper value of a company’s assets and liabilities.
Managerial accounting is only concerned with the value these items have on a company’s productivity.

This article will also discuss:

Does Managerial Accounting Follow GAAP?

NOTE: FreshBooks Support team members are not certified income tax or accounting professionals and
cannot provide advice in these areas, outside of supporting questions about FreshBooks. If you need
income tax advice please contact an accountant in your area.

Does Managerial Accounting Follow GAAP?

Financial accounting reports are distributed inside and outside of a business and are governed by GAAP
and IFRS. The external publication of financial statement makes it very necessary to follow regulation to
provide correct information.

Managerial accounting reports are shared internally only and are, therefore, not subject to such rules
and regulations and are not required by laws to follow any accounting standard.

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Save Time Billing anddifferences between financial accounting and managerial accounting, since each
one involves a distinctly different career path. In general, financial accounting refers to the aggregation
of accounting information into financial statements, while managerial accounting refers to the internal
processes used to account for business transactions. There are a number of differences between
financial and managerial accounting, which are noted below.

Aggregation

Financial accounting reports on the results of an entire business. Managerial accounting almost always
reports at a more detailed level, such as profits by product, product line, customer, and geographic
region.
Efficiency

Financial accounting reports on the profitability (and therefore the efficiency) of a business, whereas
managerial accounting reports on specifically what is causing problems and how to fix them.

Proven Information

Financial accounting requires that records be kept with considerable precision, which is needed to prove
that the financial statements are correct. Managerial accounting frequently deals with estimates, rather
than proven and verifiable facts.

Reporting Focus

Financial accounting is oriented toward the creation of financial statements, which are distributed both
within and outside of a company. Managerial accounting is more concerned with operational reports,
which are only distributed within a company.

Standards

Financial accounting must comply with various accounting standards, whereas managerial accounting
does not have to comply with any standards when information is compiled for internal consumption.

Systems

Financial accounting pays no attention to the overall system that a company has for generating a profit,
only its outcome. Conversely, managerial accounting is interested in the location of bottleneck
operations, and the various ways to enhance profits by resolving bottleneck issues.

Time Period

Financial accounting is concerned with the financial results that a business has already achieved, so it
has a historical orientation. Managerial accounting may address budgets and forecasts, and so can have
a future orientation.
Timing

Financial accounting requires that financial statements be issued following the end of an accounting
period. Managerial accounting may issue reports much more frequently, since the information it
provides is of most relevance if managers can see it right away.

Valuation

Financial accounting addresses the proper valuation of assets and liabilities, and so is involved with
impairments, revaluations, and so forth. Managerial accounting is not concerned with the value of these
items, only their productivity.

Certifications

There is also a difference in the accounting certifications typically found in each of these areas. People
with the Certified Public Accountant designation have been trained in financial accounting, while those
with the Certified Management Accountant designation have been trained in managerial accounting.

Pay Levels

Pay levels tend to be higher in the area of financial accounting and somewhat lower for managerial
accounting, perhaps because there is a perception that more training is required to be fully conversant
in financial accounting.

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