Difference Between Financial and Managerial Accounting (Financial Accounting Vs Managerial

Accounting):
Financial accounting reports are prepared for the use of external parties such as
shareholders and creditors, whereas managerial accounting reports are prepared for
managers inside the organization.
This contrast in basic orientation results in a number of major differences between financial
and managerial accounting, even though both financial and managerial accounting often
rely on the same underlying financial data. In addition to the to the differences in who the
reports are prepared for, financial and managerial accounting also differ in their emphasis
between the past and the future, in the type of data provided to users, and in several other
ways. These differences are discussed in the following paragraphs.
Financial accounting and management accounting both prepare and analyze financial data.
However, certain aspects of these two fields are very different. This article discusses the various
differences between financial accounting and management accounting. The differing
characteristics to be discussed include the users of information, the types of information,
regulatory oversight, and frequency of reporting.
Users of Information
Financial accounting and management accounting provide information to two different user
groups. Financial accounting primarily provides information for external users of accounting
data, such as investors and creditors. On the other hand, management accounting provides
information for internal users of accounting data. Internal users include employees, managers,
and executives of the company.
Types of Information
The type of information required by the different user groups also differs. External users
primarily rely on financial information about the company. They analyze this information in
conjunction with general economic information, such as information about the industry in which
the company operates. External users focus on broad information that reveals the overall
performance of the company as a whole. In addition, financial accounting only reports
information on financial transactions that have occurred in the past.
Internal users need to review financial information about the company, such as financial
statement information. They also use non-financial information about the company, such as
customer satisfaction levels and competitor data. Internal users focus on detailed information
that reveals the performance of particular subunits of the company, such as divisions or
departments. In addition, management accounting concentrates on past and present
information, as well as the forecasting of future financial transactions.
1) Financial Accounting reports are employed by outside partys likes creditors, shareholders,
tax authorities and so on. While Management Accounting reports are employed by managers
inside the organization for planning, controlling and taking decisions.
2) In Financial Accounting, only past financial transactions are considered and dont consider
non financial transactions while in Managerial Accounting emphasis is on decisions influencing
the prospect, therefore it might consider prospect data as well as non financial factors.
3) Maintenance of financial accounting records and preparation of financial statements is a
lawful need while Management Accounting is not at all lawful need. Furthermore, these systems
have their own reporting formats.

4) In Financial Accounting, accuracy of information is needed while in Management Accounting
timeliness of information is needed.
5) In Financial Accounting, only summarized data is made for the whole organization while in
Management Accounting detailed reports are made about departments, products, customer and
employees.
6) Preparation of Financial Accounting is depends of usually admitted Accounting Principles
while Management Accounting doesnt follow such principles to make reports.
7) Financial reports created by the Financial Accounting are needed to be correct while
correctness is not the precondition of management accounting.
Summary:
Financial Accounting Managerial Accounting
Reports to those outside the
organization owners, lenders, tax
authorities and regulators.
Reports to those inside the organization
for planning, directing and motivating,
controlling and performance evaluation.
Emphasis is on summaries of
financial consequences of past
activities.
Emphasis is on decisions affecting the
future.
Objectivity and verifiability of data
are emphasized.
Relevance of items relating to decision
making is emphasized.
Precision of information is
required.
Timeliness of information is required.
Only summarized data for the
entire organization is prepared.
Detailed segment reports about
departments, products, customers, and
employees are prepared.
Must follow Generally Accepted
Accounting Principles (GAAP).
Need not follow Generally Accepted
Accounting Principles (GAAP).
Mandatory for external reports. Not mandatory.