Financial Accounting vs. Managerial Accounting: What Are the Differences?

Financial accounting is one of a dozen branches of accounting that follow sets of standards and practices to monitor and report on the economic health  and activity of a company.

Financial accounting involves the process of recording and reporting the transactions resulting from an organization’s operations over a specified period of time. The transactions are summarized in financial statements that include balance sheets, income statements and cash flow statements that demonstrate the organization’s financial performance during this timeframe. Large corporations, small businesses and nonprofits all use financial accountants to establish the framework for their recordkeeping and generate their financial reports.

How does financial accounting work? It uses a series of established standards and principles. Companies in the United States that are publicly traded are required to perform their financial accounting in compliance with Generally Accepted Accounting Principles (GAAP) to ensure their reporting provides consistent information to external parties such as investors, tax authorities, regulators and creditors.

The statements generated in financial accounting cover 5 main classifications of financial information:

Managerial accounting involves gathering, measuring, analyzing and interpreting financial data for the purpose of helping an organization meet its goals. The processes involved in managerial accounting are intended to help company management make well-informed decisions.

The presentation of managerial accounting data can be modified to meet specific needs of various stakeholders, unlike in financial accounting, which must conform to the GAAP.

How does managerial accounting work? Managerial accountants process information related to the cost and sales of revenue of the goods and services their companies sell. In cost accounting, which is a managerial accounting subset, they focus on capturing a company’s total cost of production by measuring the fixed and variable costs associated with each step of production. This helps the company identify and cut unnecessary spending and maximize the profits from the sale of their products.

Other subsets of managerial accounting include:

If you’re planning to earn an accounting degree, it’s important to understand the differences between managerial accounting vs. financial accounting in greater detail.

In financial accounting, statements are prepared using financial data only. While the practice of financial accounting may have some internal uses, its main objective is to provide information to external audiences. The financial statements produced by this type of accounting are intended to disclose the company’s business performance and financial health to shareholders, regulators, tax authorities and creditors.

Management accounting’s main objective on the other hand is to produce information that can be used by the company’s internal decision makers. In management accounting, reports are generated using a combination of financial and operational data. By producing these kinds of reports, management accountants can help leaders make more well-informed decisions in strategic planning, goal setting and allocation of the company’s resources.

Financial accounting practices follow GAAP to comply with regulations set forth by the Financial Accounting Standards Board (FASB) to improve the clarity, transparency and consistency of financial reporting.

Managerial accounting doesn’t conform to a strict set of standards and accounting principles and may use estimated amounts and projections rather than actual figures. In managerial accounting, customized reports are generated and tailored to an organization’s specific challenges and objectives.

Reporting practices are widely different in the financial accounting vs. management accounting comparison. In financial accounting, reports are generated to focus on specific time frames, or accounting periods. In management accounting, reports are generally run much more frequently, sometimes focusing on day-to-day operations.

The focus of the reporting is quite different between the two practices. Financial reports include the balance sheets, income statements and cash flow statements mandated by GAAP and reflecting the financial performance of the entire company.  In management accounting, reports are handled very differently, using the hard numbers of financial accounting along with other data to make predictions and analyses as described in the previous section. Managerial accounting reports may focus on a particular department or product line, rather than looking at the whole organization.

Another difference lies in the perspective of each practice. They both look at financial performance with a big lens, but financial accounting looks back to analyze results that have already been achieved. Management accounting, however, is often forward-looking, estimating future income and expenses to create budgets and strategic plans.

Preparing to pursue a career managerial or financial accounting will also influence what you choose to focus on when you earn your degree. For those looking to pursue a career in financial accounting, focusing on coursework that helps them prepare to take the CPA (Certified Public Accountant) exam¹ may prove beneficial. For those looking to go into managerial accounting, enrolling in a program that offers coursework that can help them prepare to pursue CMA (Certified Management Accountant) certification might be helpful.

At DeVry, our Master’s Degree in Accounting and Financial Management allows you to choose an emphasis that will enhance your core accounting coursework toward CPA¹ or CMA exam prep. 

At DeVry, our Master’s Degree in Accounting and our Master’s Degree in Accounting and Financial Management can help prepare you to pursue career opportunities in accounting and finance. These graduate degree programs are designed with your professional goals in mind, allowing you to choose an emphasis in CPA Exam Preparation, CMA Exam Preparation, General Accounting or Finance.  

Concerned about the time it may take to complete a graduate degree program? At DeVry, our 6 academic sessions per year allow you to start when you’re ready and learn at your own pace, finishing on a regular or accelerated schedule that meets your personal goals and fits your busy life. Classes start soon.