Have you ever wondered what the differences are between financial and managerial accounting? Well, throughout this article I will be contrasting the differences between the two. Accounting includes areas such as taxes, auditing, costs, and information systems. However, the only area of ​​accounting related to this article is cost, because cost is a subset of management accounting. Some of the main differences between management and financial accounting include, but are not limited to, GAAP, internal / external reporting, internal / external focus, and unit focus. There are many other topics that I could use for this essay, however, I think these topics help to better describe the difference.

The first topic I’d like to talk about is the difference between management and financial accounting through GAAP (Generally Accepted Accounting Principles). A company must follow GAAP to the letter, however with managerial accounting there are ways around it, because managerial accounting does not have to worry about following GAAP standards. One of the main points in managerial accounting is cost accounting, and the goal of cost accounting is to help decision making, budgeting, and also cost analysis. To calculate the effective cost of a product, many different formulas must be followed that do not need to follow GAAP standards; however, when information is transferred to the financial side of the business, all GAAP principles must be followed. The number one goal of financial accounting is to have accurate financial statements so that the public or shareholders can continue or walk away from their investments. Additionally, to meet SEC requirements, a company must follow all GAAP principles.

Administrative and financial accounting not only follows different principles, but also has different ways of reporting your information. Managerial accounting focuses more on reporting information to an organization in the business that will help with planning and organizing for the future. Also, each month’s information is saved, and then they will use that information to predict what will happen in the future, so all the information collected is very useful. However, financial accounting reports information to a different group of people. Information is collected for the month or quarter and then sent to the CEO or CFO. The next step would be for the CEO or CFO to report the information to shareholders or anyone who makes investments in the company. Although there are big differences between the two, each is equally important.

Next, there is an important difference in the general approach of the two different types of accounting. The managerial part of the company will focus on projections for the future, because all the information that is collected over the months and years will be useful to predict what will happen in the future. However, the only approach to financial accounting is to ensure that the financial statements are correct at the end of the period. Additionally, financial accounting is required to ensure that the general ledger and journal accounts are accurate and up to date.

Not only is there a difference in the overall approach to managerial and financial accounting, but also in the way each party expresses dollars in units. Managerial accounting focuses on unit costs, which are associated with direct material, direct labor, and overhead. These are the three components that make up the costing of a product. To calculate the cost of a product successfully, it is important to include these three components in the total cost of the product. So, managerial accounting is primarily focused on how much money each unit is worth rather than the full price the product is sold for. However, on the other side of the financial accounting spectrum, the focus is on monetary units. Financial accounting is not concerned with how much each unit costs, but is more concerned with the selling price of each item that is sold.

In conclusion, there are many differences between management and financial accounting, but the main differences I decided to focus on were the differences between GAAP, reporting, focus, and unit focus. The main difference between management and financial accounting is that one has to follow GAAP to the letter and the other does not. I cannot emphasize the importance of GAAP in society, because without its principles the accounting world would be helpless. Additionally, there are some differences in the way management and finance handle reporting and their overall focus as an entity within an organization. Lastly, there are some important differences between management and financial accounting, and either way they are both extremely important and one could not function properly without the other.