DIFFERENCE BETWEEEN MANAGEMENT ACCOUNTING AND FINANCIAL ACCOUNTING

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Although both management accounting and financial accounting are branches of accounting, there are significant differences between the two that will be covered in this post.

But first, let's define each term.

Financial accounting is a branch of accounting concerned with the preparation of financial statements using generally accepted accounting principles.

It is concerned with the preparation of financial statements that companies used in assessing their financial performance and financial position.

Financial accounting is concerned with the generation of financial statements such as income statements, and balance sheets, and interpreting the financial statements for users to make informed decisions.

On the other hand, management accounting can be defined as a branch of accounting that deals with the production of financial information for internal use.

It is concerned with the generation of financial information for use in managerial decision-making.

The main purpose of management accounting is to provide financial information that will be used by managers and other internal users of financial statement 

Differences between Management Accounting And Financial Accounting

1. Financial information provided by management accounting is only used by internal users of the organization, whereas financial information provided by financial accounting is used by both internal and external users of the business.

2. Financial accounting is required to use generally accepted accounting principles (GAAP) whereas management accounting is usually based on benefit and cost analysis of proposed decisions.

3. Financial accounting reports are historical because they focus on previous transactions.

In contrast, management accounting is forward-looking because its focuses on the information required for making future decisions.

4. Management accounting measures both financial and non-financial events, whereas financial accounting reports are purely financial.

5. Speaking from the point of view of internal users, management accounting reports are usually more detailed than financial accounting reports.

6. Financial accounting is a requirement for all businesses because it is a legal requirement for all firms to prepare financial statements.

On the other hand, since businesses are not obligated to prepare management accounts, management accounting is voluntary for businesses.

Indeed, unlike financial accounting, which is mandated by law, the use of management accounting is typically voluntary.

7. Financial accounting reports are typically produced annually, semi-annually or quarterly. On the other hand, management accounting reports are typically produced as needed.

8. Financial accounting is aimed at providing financial information about the financial performance and financial position of a company.

On the other hand, management accounting is aimed at providing information that will aid planning, controlling, and decision-making in the company.

9. Most times, financial accounting records are usually based on real transactions that occurred.

In contrast, most management accounting records are usually based on estimates since it is forward-looking.

READ ALSO: BOOKKEEPING VS ACCOUNTING, BOOKKEEPER VS ACCOUNTANT

Tabular Comparisons of Financial accounting and Management accounting 

Features Financial accountingManagement accounting
Used byBoth internal and external usersInternal users
Nature of reportHistoricalForward-looking
Legally requiredYesNo
Compulsory use of Generally Accepted Accounting principlesYesNo
MeasuredOnly financial transactionsBoth financial and non-financial business events
RequirementStatutoryVoluntarily
Frequency of reportsQuarterly, semi-annually or annually Prepared as demanded by management
Shows financial performance and financial positions?Yes No
Used for planning, controllingNoYes
Based onalready occurred transactionAlready on estimates


To conclude, financial accounting and management accounting are fundamentally different from one another. Financial accounting is concerned with producing financial information for both internal and external users, whereas management accounting is only interested in producing financial information for internal users.

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