Financial and Managerial Accounting: What’s the Difference?

Accounting is one of the most critical functions in today’s fast-paced business world, where regulatory challenges and shifting economic conditions must be closely monitored. Accountants help organizations evaluate and report on their financial health, assess the financial impact of business decisions and incorporate strategic planning into their management workflows. They provide deep insights into revenues and expenses, profits and losses, liabilities and assets, and other financial data used in financial reporting.

Most companies employ several different types of accounting professionals, including internal auditors, tax experts, financial accountants and management accountants. While these specializations do have some overlap, each role focuses principally on its own responsibilities, accounting processes and legal requirements.

Professionals in both financial and managerial accounting roles sift through and organize financial data, but for very different audiences and purposes. Individuals looking to break into the accounting field should understand the similarities and differences between these professions to ensure they’re on a career path that aligns with their talents, goals and interests.

What Is Financial Accounting?

Financial accounting is dedicated to collecting data and reporting on an organization’s business performance and financial health, typically through detailed financial statements. The statements are circulated internally and externally on a scheduled basis and must adhere to strict regulations and standards set by the Financial Accounting Standards Board (FASB). Some examples of these documents include income statements, balance sheets and cash flow statements. While financial accounting can help organizations improve their internal processes, it’s mainly intended to keep parties outside the company informed about historical financial data and trends.

Financial accountants work for public and private companies, nonprofit organizations and government agencies. Public companies must abide by rules outlined under the generally accepted accounting principles (GAAP), along with guidelines set by the Securities and Exchange Commission (SEC). According to the Financial Accounting Foundation, financial reporting offers the following types of information:

  • Financial position
  • Results of operations
  • Disclosures

Financial accounting standards play a major role in how organizations set internal policies and procedures, create factual financial statements and disclose their business performance. Anyone working as a financial accountant must be familiar with relevant compliance guidelines and routine accounting tasks, such as creating invoices and monitoring accounts receivable balances.

What Does a Financial Accountant Do?

A financial accountant’s core duties revolve around preparing and reporting financial statements and ensuring they’re in compliance with applicable laws and industry standards, such as GAAP. They provide financial governance through data collection and analysis, transaction reconciliation and record auditing. Financial accountants may also offer guidance on project funding and budget preparation.

Financial accountants often oversee an organization’s process efficiency, making suggestions to improve internal systems and implementing new procedures. On occasion, they may function as an internal economic representative, communicating financial outcomes to a company’s C-suite executives or other key stakeholders.

What Is Managerial Accounting?

Managerial accounting focuses on evaluating the internal needs of businesses and solving problems that impact revenue streams, financial health and long-term profitability. According to the Corporate Finance Institute, the goal of managerial accountants is to collect information that can be used in strategic planning, benchmarking and market forecasts. Since these internal reports are not circulated outside the company, managerial accountants don’t need to adhere to GAAP or other third-party compliance rules.

Managerial accounting reports tend to be highly technical and detailed, allowing business leaders to delve into hidden inefficiencies that impact their bottom lines. This level of insight can be used by organizations not only to gain a competitive advantage in the marketplace, but to streamline their internal processes as well. For example, a management accountant could use sales forecasts to set schedules for retail workers during the holiday season. Ultimately, managerial accounting influences business decisions that affect every aspect of an organization’s operations, from human resources to product development and beyond.

As part of their role, managerial accountants must analyze a variety of events and operational data to discover how their companies can improve performance. Once this financial data is aggregated, they translate complex correlations into digestible information that can be leveraged by internal stakeholders. This could involve analyzing individual product lines, assessing operations and even evaluating how physical facilities are managed.

What Does a Managerial Accountant Do?

Managerial accountants help organizations optimize their financial performance by providing guidance on budgeting and investment strategies. They use their analytical skills to assess internal operations, project a company’s future financial performance, and prepare and present these findings to C-suite executives.

Managerial accountants also follow economic trends and make recommendations based on their observations. They may be involved in developing risk management strategies as well. Additionally, they may be called upon to supervise others linked to a company’s financial strategies, such as bookkeepers.

An accountant reviews a financial document while talking on the phone.

Similarities Between Financial Accounting vs. Managerial Accounting

Financial and managerial accounting share some common elements. Although they go about it in different ways, both fields of accounting are focused on optimizing and improving an organization’s performance and rely heavily on financial data to inform business strategy.

Both accounting roles require well-developed analytical skills. Individuals in financial and managerial accounting roles often work closely with their company’s executives, and may even work in tandem in some cases. While the information they supply to these high-level employees may differ, the insights gleaned from this data are equally important when it comes to informing a company’s business and financial decisions.

Both roles also require a minimum of a bachelor’s degree for entry-level positions. A bachelor’s program can provide professionals with fundamental accounting knowledge and bookkeeping skills that are necessary in either career.

Earning an advanced degree, such as a Master of Accountancy (MAcc), can help professionals in either role deepen their knowledge and skills. An advanced degree can lead to more career opportunities, as both fields often require a master’s for managerial and senior positions.

Additionally, although they don’t always require a certified public accountant (CPA) license, those seeking to advance in either a financial or managerial accounting role should consider getting a CPA, as this may expand their career opportunities. Managerial accountants who want to advance their career may also consider earning a certified management accountant (CMA) credential, while licensed CPAs can pursue additional certifications.

Financial Accounting vs. Managerial Accounting: Key Differences

Financial and managerial accounting are crucial to organizations’ long-term profitability and success. Professionals in both roles rely on accurate financial data to support their reporting and analysis. Often, financial and managerial accountants work together to track the efficiency of business operations and locate areas where improvements can be made. However, the core principles and processes of these accounting specializations are markedly different.

Here are three differences between financial accounting and managerial accounting:

1. Regulation and Compliance

As mentioned above, financial accounting must adhere to the rules set by the FASB, SEC and other industry partners to remain compliant. This is because the statements produced by financial accountants are circulated both internally and externally. Income statements, balance sheets and cash-flow statements are highly regulated and uniformly generated by public companies to benefit regulators, investors and the general public. Failing to uphold GAAP can lead to serious financial and legal ramifications, which is why financial statements of public companies must be audited by certified public accountants.

By contrast, managerial accounting is much less controlled and centralized because the information is only meant for internal use. This allows managerial accountants to perform exploratory analysis and nontraditional reporting that falls short of GAAP. As noted by the Accounting Institute for Success, many in this line of work become certified management accountants (CMAs) to expand their employment opportunities, though no specific certification is needed.

2. Historical Data vs. Future Trends

Financial accounting only deals with historical data on business performance and financial health, making accuracy and transparency a top priority. Financial accounting reports tend to be generalized for the widest possible audience and do not contain forecasts. The information provided is concise, specific and based on hard facts or evidence-based estimates that can be verified through a financial audit.

Managerial accounting is much less rigid in its approach to financial analysis, as professionals frequently contend with shifting market trends, uncertain consumer demand and other complex variables. For example, managerial accountants are often more concerned about the systems that enable a company to generate profit than the outcome itself. By studying operational bottlenecks and wasted spending, managerial accountants can offer specific recommendations that improve performance and enhance profit margins.

3. Reporting

Financial accounting and managerial accounting handle reporting in very different ways. Financial accountants must prepare financial statements at the end of their companies’ fiscal year, though most organizations do so monthly to keep track of their ongoing business performance. The results they compile are for the business as a whole, not individual departments or product lines.

Managerial accounting reports are generated much more frequently and don’t always focus on the big picture. For example, some reports evaluate day-to-day business operations, while others interpret sales figures to help forecast future earnings. In both cases, the work of managerial accountants provides the context business leaders and managers need to make better, more informed decisions.

Expand Your Accounting Career with an Online MAcc

Whether you’re interested in pursuing a career in financial or managerial accounting, you’ll need to develop the right skills, knowledge and experience to stand out during the hiring process. The online Master of Accountancy program at the University of Nevada, Reno is designed to elevate your understanding of general accounting principles, tax laws, financial analysis and reporting standards so you can expand your employment opportunities.

The program provides a structured curriculum that touches on key aspects of financial and managerial accounting, allowing you to pursue a CPA or CMA after graduation. With courses in accounting research, taxation of corporations and other business entities, business analysis methods and data transformation, you can learn how to make valuable and lasting contributions to organizations in any industry. This unique MAcc program can be completed entirely online, allowing you to balance your education with other commitments.

To learn more, explore the online Master of Accountancy (MAcc) degree page or contact an enrollment adviser today.

Recommended Reading:

Types of Accounting Jobs

What Is Managerial Accounting?

What Is the Difference Between Accounting and Accountancy?

Sources:

Accounting Institute for Success, “What Is a CMA and What Do They Do?”

Corporate Finance Institute, Managerial Accounting

Financial Accounting Foundation, About GAAP

Indeed, “What Does a Financial Accountant Do? Role, Duties and Salary”

Investopedia, “What Management Accountants Do”

New York State Society of Certified Public Accountants, Accounting Terminology Guide

Robert Half, Financial Accountant Job Description Guide

U.S. Bureau of Labor Statistics, Accountants and Auditors