Question

How does managerial accounting differ from financial accounting? Please focus on the following elements: 1- Past versus Present 2- Precision versus Timeliness 3- Requirement to follow GAAP/IFRS

Answer 1

A common question is to explain the differences 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.

Accounting, refers to the process of recording, classifying and summarizing in monetary terms, the business transactions and events and interpreting the results. It is used by entities to keep a track of their financial transactions. Financial Accounting and Management accounting are the two branches of accounting. Financial accounting stresses on giving true and a fair view of the financial position of the company to various parties.

On the contrary, management accounting aims at providing both qualitative and quantitative information to the managers, so as to assist them in decision making and thus maximizing the profit. This article excerpt is created to help you learn the significant differences between financial accounting and management accounting.

1. Financial Accounting is the branch of accounting which keeps track of all the financial information of the entity. Management Accounting is that branch of accounting which records and reports both the financial and nonfinancial information of an entity.
2. Users of financial accounting are both the internal management of the company and the external parties while the users of the management accounting are only the internal management.
3. Financial accounting is to be publicly reported whereas the Management Accounting is for the use of the organisation and hence it is very confidential.
4. Only monetary information is contained in financial accounting. As against this, management accounting contains both monetary and non-monetary information such as the number of workers, the quantity of raw material used and sold, etc.
5. Financial Accounting is done in the prescribed format, whereas there is no prescribed format for the Management Accounting.
6. Financial Accounting focuses on providing information about the functioning of the entity’s business to its users, whereas Management Accounting focuses on providing information to help them in evaluating the performance and devising plans for the future.