financial and managerial accounting

What is the Difference Between Financial Accounting and Managerial Accounting?

In financial accounting, accounting data is collected to generate financial statements. On the other hand, the internal accounting procedure that is used to account for the company transactions is managerial accounting. This is the main distinction between financial accounting and managerial accounting. 

In this blog, we will have a brief overview of the differences between these two types of business accounting.

financial vs managerial accounting

 

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What is Financial Accounting?

Financial accounting is an accounting term that is used to summarise, record, and report the financial data of a company. The financial accountants keep a log of every internal or external expenditure of a company. In addition, they are in charge of generating and submitting financial statements. 

They provide precise information to the company management, people (outside the company), such as investors, tax authorities, shareholders, and business regulators. Everyone can trust this information because it is authentic in every aspect.

The primary focus of financial accounting is the external users of financial information. Therefore, financial statements are mandatory to be prepared, and financial information should be presented as per the specific principles of accounting.

 

What is Managerial Accounting?

Management accounting is mainly prepared for the internal users, e.g., the company’s management or directors. Its primary purpose is to prepare accounts that help managers or directors control the company’s operations and make decisions.

So, they can be prepared and presented in any format that goes with the entire management team, as they are not mandatory. Moreover, management accounts are only prepared if needed.

 

Dissimilarities between Financial Accounting and Managerial Accounting

The dissimilarity between financial accounting and managerial accounting is shown in the following categories.

Systems – Financial accounting is only concerned with making a profit. It does not care about the entire system of how a company operates. In contrast, managerial accounting searches for bottleneck activities and inspects alternative ways to increase profits by reducing bottleneck problems.

Reporting Focus – The goal of financial accounting is to create financial statements that can be shared with internal and external stakeholders and the general public. On the other hand, managerial accounting is concerned with the operational reporting that can be shared with internal users.

Aggregation – Financial management inspects the entire company, whereas managerial accounting provides information at a detailed level such as product line, geographic region, and profits by product.

Timing – Till the end of each accounting period, financial statements can be submitted. In comparison, managerial reports may be given more frequently to provide directors or managers with timely information so that they can make decisions.

Proven Information – To verify that the financial records are accurate, considerable precision is required. Because, for reporting, financial accounting depends on this precise data. In contrast, managerial accounting generally deals with estimations instead of proven facts.

Time – Managerial accounting provides estimations for the future. In contrast, financial accounting is historically focused as it has to look to the past in order to examine the already achieved financial results. 

Valuation – To determine the correct value of a company’s assets and liabilities is the main focus of financial accounting. In comparison, the value of these factors on a company’s productivity is considered in managerial accounting.

 

Quick Sum Up

We hope with the highlighted categories; you will better understand the dissimilarities between financial accounting and managerial accounting. So we will sum up our blog by saying that financial accounting provides a company’s current financial information and historical data for many users. In contrast, managerial accounting provides estimations for the future. It focuses on giving confidential data for making decisions that will have an impact on future operations.

 

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Disclaimer: This blog contains general information about the above-mentioned details.

 

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