Accounting is a business function with numerous sub-parts. Financial accounting and managerial accounting are two such parts. Financial and managerial accounting differ in many ways. These differences can make it challenging for managers who need to understand the financial side of their company and how it makes money. This blog highlights key differences between financial and managerial accounting services , so you can keep your company’s finances on track and improve profitability.
Financial accounting is a comprehensive view of the financial condition of a business. It includes information about the assets and liabilities of the business, as well as the activities related to these assets and liabilities during the period. This information helps a business owner or accountant understand the financial health of their company. From this information, they can determine how much they will earn from revenue, how much they will spend to acquire inventory and salaries, and how much they have as cash on hand at the end of the period. This information is useful for decision-making, such as whether to start a new product line and how much to invest in the new product.
Managerial accounting is a subset of financial accounting that focuses on the activities of managers and their impact on the business’s financial state. It seeks to answer questions such as: How do managers affect the financial health of a business? How much do managers affect the profitability of a business? Managerial accounting is different from financial accounting because it looks at a company’s activities from a different perspective. Financial accounting focuses on the quantitative aspects of a business, such as revenue and expenses. In contrast, managerial accounting focuses on the qualitative aspects of a business, such as how managers affect the company’s financial performance.
Key Differences Between Financial and Managerial Accounting
These are the key differences between financial and managerial accounting: -
- Scope: Financial accounting focuses on the quantitative aspects of a business, while managerial accounting focuses on the qualitative aspects.
- Goals: Financial accounting is mainly used for financial reporting, while managerial accounting is used for planning, budgeting, and controlling.
- Types of activities: Financial accounting services on the activities of owners and key employees, while managerial accounting examines the activities of all managers.
Financial accounting and managerial accounting are different in many ways, but both are a part of accounting. They look at different aspects of business finance to ensure business growth. While financial accounting looks at how the transactions affect the business and how much revenue is earned, managerial accounting focuses on how business management affects the business and what decisions are required to enhance business profitability. For example, in the case of project accounting, the financial accounting part relates to tracking and recording transactions and preparing financial statements and reports. On the other hand, management accounting deals with planning, preparing budgets, controlling, and other decision-making aspects based on financial statements and reports.