Financial Accounting vs. Management Accounting: What's the Difference?
Edited by Janet White || By Harlon Moss || Published on November 29, 2023
Financial accounting focuses on reporting financial information to external parties, while management accounting focuses on providing information to internal management for decision-making.
Key Differences
Financial accounting involves the preparation of financial statements that summarize a company's financial position and performance for external users, while management accounting involves the analysis and presentation of financial information to help managers make informed business decisions.
Financial accounting is governed by GAAP and other relevant accounting standards, while management accounting is not required to comply with these standards.
The main objective of financial accounting is to provide useful financial information to external stakeholders such as shareholders, creditors, and regulators. On the other hand, management accounting aims to provide relevant and timely information to internal managers to assist them in planning, controlling, and decision-making processes.
Financial accounting reports are typically prepared on a periodic basis, such as quarterly or annually, while management accounting reports can be prepared as frequently as needed by management.
Comparison Chart
Follows GAAP and IFRS
Not required to follow GAAP or IFRS
Accounting standards
ADVERTISEMENT
Reports to external stakeholders
Reports to internal management
Audience
Historical and objective data
Future-oriented and subjective data
Nature of data
Periodic reporting (quarterly, annually)
Reports as needed by management
Frequency of reporting
Focuses on financial statements
Focuses on decision-making information
Main objective
Financial Accounting and Management Accounting Definitions
Financial Accounting
Financial accounting records and reports a company's financial transactions to external parties.
The financial accounting department prepared the annual financial statements for the shareholders.
ADVERTISEMENT
Management Accounting
Management accounting helps in budgeting and cost control.
Management accounting played a crucial role in setting the annual budget.
Financial Accounting
Financial accounting helps in securing loans and attracting investors.
The company used its financial accounting records to secure a loan from the bank.
Management Accounting
Management accounting assists managers in making informed business decisions.
Management accounting provided the data needed to decide on product pricing.
Financial Accounting
Financial accounting assists in tax preparation and filing.
The financial accountant calculated the company's taxable income for the year.
Management Accounting
Management accounting aids in performance evaluation and improvement.
Management accounting identified areas where the company could cut costs.
Financial Accounting
Financial accounting provides historical financial data to help assess a company's performance.
Financial accounting revealed the company's revenue growth over the past five years.
Management Accounting
Management accounting supports strategic management and long-term planning.
Management accounting provided insights for the company's five-year strategic plan.
Financial Accounting
Financial accounting ensures compliance with accounting standards and regulations.
Financial accounting helped the company adhere to GAAP and avoid penalties.
Management Accounting
Management accounting focuses on future projections and planning.
Management accounting helped forecast the company's sales for the next quarter.
FAQs
What is the purpose of financial accounting?
To report financial information to external stakeholders like shareholders, creditors, and regulators.
Who are the main users of financial accounting information?
External stakeholders such as shareholders, creditors, and regulators.
What standards does financial accounting follow?
Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS).
What are the key components of financial statements in financial accounting?
Balance sheet, income statement, cash flow statement, and statement of shareholders' equity.
How does management accounting differ from financial accounting in terms of reporting frequency?
Management accounting reports are prepared as frequently as needed by management, while financial accounting reports are typically prepared quarterly or annually.
How does financial accounting assist in tax preparation and filing?
By providing the necessary data and calculations to comply with tax regulations.
Does management accounting follow GAAP or IFRS?
No, management accounting is not required to comply with GAAP or IFRS.
How does financial accounting help in securing loans and attracting investors?
By providing reliable financial data that demonstrates the company's financial health and performance.
How often are financial accounting reports prepared?
Typically quarterly or annually.
How does management accounting support decision-making?
By providing relevant and timely information to managers, such as budgeting, forecasting, and performance analysis.
How do financial accounting and management accounting differ in terms of data?
Financial accounting uses historical and objective data, while management accounting uses future-oriented and subjective data.
What is the main objective of management accounting?
To assist managers in planning, controlling, and decision-making processes.
How do financial accounting and management accounting differ in terms of reporting standards?
Financial accounting follows GAAP and IFRS, while management accounting is not required to follow these standards.
How does management accounting support strategic management?
By providing insights and analysis to inform long-term planning and strategy development.
How does management accounting aid in performance evaluation?
By providing information to assess and improve company performance.
What is the purpose of management accounting?
To provide relevant and timely information to internal managers for decision-making.
What is the difference between financial accounting and management accounting in terms of audience?
Financial accounting reports to external stakeholders, while management accounting reports to internal management.
What is the main objective of financial accounting?
To provide useful financial information to external stakeholders.
How does management accounting help in budgeting and cost control?
By providing data and analysis to support budgeting and identify areas for cost reduction.
Who are the main users of management accounting information?
Internal managers and employees.
About Author
Written by
Harlon MossHarlon is a seasoned quality moderator and accomplished content writer for Difference Wiki. An alumnus of the prestigious University of California, he earned his degree in Computer Science. Leveraging his academic background, Harlon brings a meticulous and informed perspective to his work, ensuring content accuracy and excellence.
Edited by
Janet WhiteJanet White has been an esteemed writer and blogger for Difference Wiki. Holding a Master's degree in Science and Medical Journalism from the prestigious Boston University, she has consistently demonstrated her expertise and passion for her field. When she's not immersed in her work, Janet relishes her time exercising, delving into a good book, and cherishing moments with friends and family.
