What is the difference between financial accounting and management accounting?

Answer 1

Managerial accounting is focused on the operation reporting which is internal to the company. Financial accounting has to comply with various accounting standards to supply information to those outside the company. Managerial accounting is not required by law, whereas financial is…

Answer 2

Summer:

Good question!

While there are many differences between financial accounting and managerial accounting, most of the distinctions can be made by keeping in mind the intended audience of the information. What do I mean?

For financial accounting, the accountant or Chief Financial Officer is trying to portray financial information about the corporation or entity to individuals who are outside of the organization. For example, the information is primarily for the corporation's investors, creditors, suppliers, and sometimes, customers. A classic example is related to providing information to shareholders (the investors) of the corporation to answer questions such as, "Should I invest more money in the corporation?", "Is now a good time for me to sell my shares?", "Should I lend this corporation money vis-a-vis bonds", etc.

The primary ways of conveying this information is through the Balance Sheet, Income Statement, Statement of Cash Flows, and the Statement of Changes in Retained Earnings.

Managerial accounting, on the other hand, is designed to provide information to managers and others within the corporation, to allow them to reduce risk of the organization and increase profitability. While these users care about financial accounting figures, the role of the managerial accountant will be to provide decision making information about expanding operations, pricing, selling a factory, etc.

If I can clarify further, let me know!