Management accounting and financial accounting are two distinct disciplines that are essential for any business. While financial accounting focuses on providing information to external stakeholders, management accounting focuses on providing information to internal decision makers. The two main differences between financial and management accounting are the intended users of the information and the accuracy of the data. Management accounting is presented to the company's internal community, such as managers, while financial accounting is prepared for an external audience, such as investors, creditors, and regulators.
Financial accounting must adhere to generally accepted accounting principles (GAAP) in order to maintain its publicly traded status. On the other hand, management accounting can be based on an assumption or estimate since most managers don't have time to obtain exact figures when a decision needs to be made. The Chartered Institute of Management Accountants (CIMA) defines management accounting as “the process of identifying, measuring, accumulating, analyzing, preparing, interpreting and communicating information that management uses to plan, evaluate and control within an entity and to ensure the proper use of responsibility for its resources”. This type of accounting deals with providing information to managers for use in planning and controlling operations and in decision-making.
Financial accounting is concerned with providing information to shareholders, creditors, and others outside the organization. Financial accounting provides the scorecard by which a company's past performance is judged. The Financial Accounting Standards Board (FASB), under the aegis of the Securities and Exchange Commission (SEC), establishes financial accounting standards in the United States. If you plan to work in business after graduation, it is important to understand how companies work financially, especially if you plan to hold a leadership position in the future.
The key difference between financial accounting and management accounting lies in the intended users of information for each. Financial accounting systems are aimed at external decision makers such as investors, regulators, and creditors, while management accounting systems are aimed at internal decision makers such as managers. A distinctive feature of management accounting is that it is not based on past performance but on current and future trends. At Bentley University, students who specialize in Accounting or Corporate Finance and Accounting will take two intermediate courses that will delve into the topics of managerial and financial accounting.
Understanding the differences between these two disciplines is essential for any business professional who wants to succeed in their career.
