Concepts of Differences Between Financial and Managerial Accounting

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Regardless of the nature of an organization or the kind of business an organization is involved in, it is important for all organizations to maintain a set of financial records for not only accountability purposes but also as important records to show the progress of a business. In addition, it is important to note that, such accounting data or information contained in an organization’s accounting records is an important tool, in any business decision-making process.

Therefore, the main goal behind any business accounting undertaking is the provision of crucial information, which acts as the main determining factor on any decision undertaken by a business unit or organization’s management. On the other hand, it is also crucial to note that, any business accounting undertaking; in an organizational setting, acts as an important tool for gauging, recording, categorizing, and providing a desirable synopsis of any business undertaking. Accounting as one of the main areas of any business management has many sub-divisions; financial and managerial accounting are some of the most crucial areas.

These two subdivisions form the main areas of any cost accounting business undertaking. Although these two areas have many similarities, is important to note that, they also have many differences primarily in their rules and regulation of application, and reporting methodologies embraced in both, on the administration of information. This paper will discuss the differences, which exist between these two disciplines of cost accounting, in an organizational setting (Bushman, 2007, p.1).

Differences between Financial and Managerial Accounting

Although both areas of accounting are crucial in managing organizations, it is important to note that, the use of information provided by managers from the two areas is different. That is, information from the managerial accounting process is crucial to those individuals inside a specific business unit. Such individuals may include an organization’s workers, the supervisory teams, and the general departmental managers. In addition, most of such reports; from managerial accountants, act as important predicting measures to an individual inside a specific business unit, when it comes to the internal decision-making process.

That is, evaluations of the past, present, future performance of a company are crucial or necessary to management teams, for they form the main basis of any strategies that such teams will formulate and implement; in order to realize the general organizational targets. The case is a little bit different when it comes to financial accounting in that, any obtained report is important primarily important to members external to an organization; who are important to an organization’s running. That is to say, although information from financial managers is essential to the internal management teams of an organization, it is important to note that, the information is more important to shareholders or investors (Goessl, 2010, Para 1-3).

Because of such variations of groups to which information from the two accounting areas is important, another difference between the two disciplines; on the nature of the information provided by the two areas, emerges. This is because; most external users require general economic data, which is crucial for ascertaining the general performance of an organization hence, the importance of the pas history of an organization. Contrary to this, most internal users require information that shows the specific performance of specific business units, in an organizational setting, as concerns customer satisfaction, the nature of market competition, and the level of achievement of desired goals (Gross, McCarthy & Shelmon, 2005, pp.3-8).

A third primary difference existing between these two areas of accounting; managerial and financial accounting is the frequency at which managers create and release the accounting reports in these two areas. In the former, there is no specific duration or time span at which the law requires managers to release their reports. Hence, depending on an organization, such reports can reflect the weekly, daily, or monthly business accounting undertakings. The case is a little bit different when it comes to the latter that is, unlike managers in the managerial accounting department, managers here must create financial records of specific time spans; depending on the specific fiscal year of an organization (Kondrat, 2010, P.1).

Because financial information is very important to the general public hence, making it necessary for governments to guard civic interests, financial accounting has regulatory bodies, regardless of a country. Some of these bodies include the Financial Accounting Standards Board (FASB), Securities and Exchange Commission, and the Public Company Accounting Oversight Board (PCAOB) (Gross, McCarthy & Shelmon, 2005, pp.6-8. The scenario is a little bit different in the field of managerial accounting, owing to the fact that, any information from managers of this area of accounting is only crucial to the internal members of an organization hence; its effects on the general-“Innocent” public are minimal.

Finally, the level of confidentiality of information in these two accounting fields differs. That is, most managerial accountants must observe high levels of confidentiality primarily because; exposure of some managerial information to some members of an organization can lead to many management problems, for example, data on remuneration variations.

This contrasts with the level of exposure of information in financial accounting because most information in this area has to clearly show the degree of liquidity, stability, level of income, and solvency of an organization. In addition, because such information is important for attracting interested investors, or retaining an organization’s investors, sometimes the level of confidentiality is minimal.


In conclusion, although these areas do not share some concepts in their application, it is important for all individuals to always remember that, regardless of their policies and methodologies of implementation, both of them are crucial for the success of any business. In addition, it is also crucial for all individuals to note that whichever the business scenario all financial and managerial managers must adhere to standards and ethics of accounting, which include confidentiality, respect or integrity, and objectivity (Bushman, 2007, p.3).

Reference List

Bushman, M. (2007). The differences between financial accounting and management accounting. Associated Content: Business and Finance. Web.

Goessl, L. (2010). Financial accounting verses management accounting. Helium. Web.

Gross, M. J., McCarthy, J. H., & Shelmon, N. E. (2005). Financial and accounting guide For not-for-profit organizations. (7th E.d). New Jersey: John Wiley and sons. Web.

Kondrat, A. (2010). Differences between financial accounting and managerial accounting. Suite 101. Web.

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