Question

Briefly identify some key differences between managerial accounting and financial accounting. Make sure to address the following points in your answer:

Users of the information

Decisions being made

Constraints/Rules

Any other pertinent information

Answer 1

Financial Accounting refers to the accumulation of accounting information into Financial Statements, while Managerial Accounting refers to the internal processes used to account for Business Transactions. Some of the key differences are :-

1. Time Period -Financial Accounting deals with the financial results that a business has already achieved, and therefore has historical orientation. Managerial accounting address budgets & forecasts, and therefore has future orientation.

2. Reporting Focus- Financial accounting is oriented towards the preparation of financial statements, which are distributed both within and outside of a company. Therefore the users are both internal and external whereas Managerial accounting is more concerned with operational reports, which are only distributed within a company and therefore has internal users only.

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

4. Standards -Financial accounting should comply with the various accounting standards, whereas managerial accounting does not have to comply with any standards when information is compiled for internal consumption.