Introduction to Managerial Accounting

Introduction to Managerial Accounting

How is managerial accounting different from financial accounting?

Accounting has different fields that cater the needs of the different stakeholders of an organization. The key differences in managerial and financial accounting are as following:

Financial accounting is basically used for providing information to the external users for example owners, lenders, tax authorities and regulators. On the other hand managerial accounting used by internal users so that they help the management in organizing, planning, directing, motivating, controlling and evaluating the performance of the organization.

Financial accounting shows the financial implications of the activities performed by the organization in the past. On the other hand managerial accounting shows the effect of accounting on the decisions made by an organization in the years to come.

The main emphasis of financial accounting is on the objectivity and verifiability of the data collected. In managerial accounting relevance is given to the items or books of accounts that are related to the decision making of the management.

In financial accounting accuracy of the information is required whereas in managerial accounting timeliness of the information is required.

Financial Accounting summarizes all the activities of an organization in the form of ratios, financial statements and etc. whereas managerial accounting is related to designing of detailed reports regarding different segments and departments of the organization, regarding products, customers and etc. These detailed reports are made by the employees in the finance or accounts departments.

In order to follow financial accounting it is necessary that the Generally Accepted Accounting Principles (GAAP) is used while for following the managerial accounting it is not necessary to follow Generally Accepted Accounting Principles (GAAP).

Financial accounting is mandatory for developing external reports while for developing external reports it is not necessary to use managerial accounting only.

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