Is there a difference between managerial accounting and financial accounting?

Question

In many universities and schools, there is both a Managerial Accounting and a Financial Accounting course. From what I can gather, Financial Accounting covers accounting from an perspective of an investor, while Managerial Accounting covers accounting from the perspective of a business manager. Is there really a difference, or is the distinction more of a subjective standpoint?

Answer 1

Hi Candida. Great question! Yes, there is a big difference between the two and most universities will require you to take both financial accounting and managerial accounting to get a business degree. Financial accounting is what businesses use to report their financial results to their shareholders, banks, etc. This is where you will learn about how the business transactions make their way into the company's books and records through journal entries and account records. How does a sale at a cash register make its way to the income statement that presents the company's financial results for the year?

Managerial accounting is used primarily by operational managers to analyze costs. Managerial accounting is closely related to manufacturing companies where the operations teams want to determine how much it costs to make a "widget". Some examples include employee pay, overhead costs (rent and utilities), the cost of the machinery used. This is a simplified answer of course. There are equations/ratios to learn and profitability analysis, etc.

There are jobs that are specific to each and generally you won't find an accountant who does both financial and managerial accounting for a living. I hope this helps!!

Answer 2

Yes you are correct. Besides the difference you already noted, in managerial accounting you are not required to adhere to GAAP and the type of accounting work involved is very different. Managerial accounting is focused on allocation of factory overhead, reducing product costs, cost benefit analysis, efficiency, adding/removing product lines and new divisions based on what will be more profitable, etc. These are all accounting decisions that are important to management in order to run a profitable business. Financial accounting on the other hand, deals with external reporting, and has a focus on providing accurate financial statements that will allow investors and other stakeholders (ex.creditors) to make decisions on whether to invest and/or lend money to the company.