Financial Accounting Vs Managerial Accounting

Financial accounting and managerial accounting are two different but equally important branches of accounting. Overall accounting includes calculation of financial figures such as tax, profit, expenses, income and many others. However in this article we will only discuss the areas related to the cost as it is a subset of the managerial accounting. There are a number of differences in managerial and financial accounting. List of key differences are described as under:-

  • GAAP
  • Internal and External Reporting
  • Internal and External Focus
  • Unit Focus

GAAP

GAAP stands for generally accepted accounting principles. It is compulsory for financial accounting to follow strictly the GAAP principles however for managerial accounting following GAAP principles is not compulsory as managerial accounting deals with cost related issues such as budgeting, future planning and decision making that do not require GAAP principles to be followed

Internal and External Reporting

Managerial accounting use information to report within the organization. It most used for decision making purpose by the managers. On the other hand financial accounting provides information to various groups of people such as public, investors, shareholders and creditors.

Internal and External Focus

The focus of managerial accounting is that of making projections for the future. The focus of the financial accounting is only over that particular accounting period.

Unit Focus

Units with which these two kinds of accounting deal are also different. Managerial accounting is associated with the unit of cost such as direct cost, overhead cost and labor cost. On the other hand of spectrum financial accounting deal with monetary unit such as the unit at which an item is being sold.

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