Managerial accounting can be defined as the process of identification, measurement, analysis, interpretation, and communication of financial information to the managers. This information provides an insight to the managers in order to make future decisions. It includes many facets of accounting in order to make the information more useful. Using cost accounting in managerial accounting helps the business get an insight into the variable and fixed costs, which is used by the managers to strategically cut down the cost and increase profits.
Managerial accounting indicates the past performance of the company in order to do business forecasting. It helps the management in making informed decisions. On the other hand, financial accounting is more backward-looking as they just contain data for a definite period of time. However, investors and analysts do forecasting based on financial reports.
One of the major differences between the two branches of accounting is the legal regulations that they need to follow. Since managerial accounting is only done for internal usage, different companies make different rules and systems based on their line of business. However, financial accounting needs to follow a definite set of rules and regulations specified by GAAP. This is because the financial reports are meant for external use and the accountant needs to be very careful with the calculations and construction of the reports. The uniformity in the preparation of reports helps the investors to compare different companies.
Financial accounting is more generalized and concise in comparison to managerial accounting. Managerial accounting is more detailed, specific, and technical as it is meant to provide information to your managers.
The timing of financial accounting is predefined and takes place at the end of any accounting period. On the other hand, managerial reports are prepared more often based on the situation.
Financial reports indicate the profitability and efficiency of any company, while managerial reports indicate the cause of any problem along with the solution for it.
Financial accounting is used to analyze the value of assets and liabilities that a company has. On the other hand, managerial accounting is used to understand the value that these items are offering to ensure the productivity of the company.
Financial accounting is concerned with providing financial records that should be handled with precision while managerial accounting often deals with estimated figures.
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