Financial accounting is about financial transactions and accounting systems. The end product of financial accounting is the preparation of the financial statement. The scope of financial accounting is comparatively greater than managerial accounting because many people are interested in the results produced by financial accounting. So, Let’s make a comparison chart to differentiate between the two types of accounting.
|Financial Accounting||Managerial Accounting|
|A more significant number of people are interested in applying financial accounting that includes shareholders, Government, auditors, and management of the company.||The use of managerial accounting is limited to management. Hence, It helps management in making decisions about the operation of the company.|
|Financial accounting is about recording, summarizing, and reporting financial information. Hence, useful for the investors.||Managerial accounting is about the internal decision-making of the company. For instance, product pricing, process costing and departmental accounting, etc.|
|External auditors review the work performed by the management using financial accounting.||Internal auditors mostly review the work performed by management using managerial accounting.|
|Financial accounting is about historical data and information. It measures the performance of the business based on the closing of the period.||Managerial accounting is the prospects of the business and helps in forecasting, decision making, and different administrative tasks.|
|International accounting Standard Board issues financial reporting standards that companies around the world use.||There are no such international guidelines for managerial accounting. Hence, Companies use their customized reporting formats.|
|Regulatory compliance surrounds financial reporting as regulators are interested in matters related to financial accounting.||Formats and presentations of managerial accounting are entirely at the discretion of the management. Hence, they can modify in line with their desires.|
Financial accounting concepts
Well-known financial accounting concepts include matching concept, prudence concept, materiality, financial reporting standards, preparation of the general ledger, trial balance, balance sheet, income statement, cash flow statement, statement of changes in equity, and much more. Hence, it helps to improve reporting mechanism,
All these reports produced by financial accounting relate to historical data. Further, These reports help the businesses assess the financial results with different performance evaluation tools, including ratio analysis.
Managerial accounting concepts
The concepts of managerial accounting include costing methods, process costing, budgeting, forecasting, departmental accounting, transfer pricing, balanced scorecard, and other tools that help management in decision-making about the future of the company. Hence, Managerial accounting helps management in effective business operations.
Which accounting is better?
Both types of accounting are mandatory for the company to run smoothly. However, Managerial accounting is mostly about management and information related to their process of decision making. Leaders and top officials of the request management accountant to assist them in the process of decision making by providing certain input like how much feasibility they look for in some specific product, department, or expected expansion of the company.
On the contrary, financial accountants are more concerned about bookkeeping, ledgers, trial balance, balance sheet, income statement, cash flow, changes in equity, notes to the accounts, etc. So, it’s really not about good, better, or the best. So, It’s just about the use of the concepts and related use of them.