In school did you find Financial or Managerial Accounting Harder?

Managerial Accounting Vs Financial Accounting: Whats The Difference?

What do you think of when you hear the word accounting? More than likely you think of financial information and numbers. Now, what do you think of when you hear the words managerial accounting and financial accounting? If you think they’re the same thing, you may be surprised to learn that while they both deal with numbers, the two are actually very different from one another.

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Differences Between Financial Accounting vs. Managerial Accounting

Although financial accounting and managerial accounting complement each other in an organization’s financial strategy, professionals considering one of these careers should understand the differences between the disciplines. Managerial accounting focuses on an organization’s internal financial processes, while financial accounting focuses on an organization’s external financial processes.

Managerial accountants focus on short-term growth strategies relating to economic maintenance. For example, managerial accountants can perform a make-or-buy analysis to determine the financial soundness of producing a part to help with manufacturing a product.

Financial accountants focus on long-term financial strategies relating to organizational growth. The financial reports that these accountants produce follow established formats and abide by Financial Accounting Standards Board (FASB) rules and regulations. The guidelines are outlined in the generally accepted accounting principles (GAAP), which all publicly traded companies in the U.S. have adopted.

Compliance with established formats is vital for financial accountants, who must prepare reports for shareholders and potential investors as well as executives. Managerial accountants, however, generally prepare their reports for internal audiences.

Managerial accountants typically command higher salaries than financial accountants. The median annual salary for financial accountants is about $55,500, according to July 2020 data from PayScale. The median annual salary for managerial accountants is about $72,100, according to August 2020 data from PayScale.

Jobs in Managerial Accounting

Graduates of the managerial accounting degree are well equipped to work in finance, bookkeeping, and accounting positions within private, public, profit, and nonprofit organizations. Examples of managerial accounting positions include:

  • Corporate controller
  • Accounting manager
  • Financial analyst
  • Budget analyst
  • Auditor

With a bachelor’s degree in managerial accounting from Cambridge College, you’ll also be prepared for graduate studies in accounting, finance, and economics.

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Are personal finances considered financial accounting or managerial accounting?

Personal finances are closer to financial accounting rather than managerial accounting. This is because your personal finances often involve the preparation of financial statements to show income and expenses, and tracking your net worth. You may also need to monitor bank statements, investments, and more, requiring similar steps to preparing financial statements for a business.

Which Is Right for You?

Choosing between financial accounting and managerial accounting should not be difficult, and the choice mainly depends on your company’s specific needs and business model.

When Financial Accounting Works Best

Financial accounting reports are typically generalized and concise, and information is less revealing because they are available to outside parties. Most companies will require financial statements regularly.

Choose financial accounting if you:

  • Want to make reports available externally
  • Want to look at the company’s historical performance
  • Want to only look at financial data
  • Want to provide information accepted by outside regulators

When Managerial Accounting Works Best

Managerial accounting reports tend to be more detailed and technical in nature. Companies are often looking for ways to gain a competitive advantage, so they examine a lot of information that might be hard to understand for outside parties.

An example would be an internet company that uses cloud computing services for its employees. The monthly rates for renting out cloud space have increased, so a managerial accounting report can detail the company’s budget for cloud services against its actual expenses to see if the increases in cloud services are costing the company too much.

Choose managerial accounting if you:

  • Want to make reports available internally
  • Want to do forecasting
  • Want to look at financial and operational data
  • Want to focus on specific management needs

Managerial accounting is used by managers to better understand and run the company, while financial accounting is used by third parties to evaluate a company’s compliance standards as set out by regulators such as the Financial Accounting Standards Board (FASB).

Although it’s entirely possible for a company to only use financial accounting, employing it along with managerial accounting can offer a best-of-both-worlds option: accurate financial information and a clear path to planning for a better future.

What are the similarities between financial accounting and management accounting?

Despite the differences between financial accounting and management accounting, there are some similarities between the two which are as follows: (1) Both deal with economic and business events. (2) Both try to quantify the results of business activity and transactions.

How hard is financial accounting?

Accounting is a very memorization heavy topic that requires a lot of work and rote memorization. Accounting is about mechanics and if you can memorize the rules – you will be successful. APAE – Private Equity Partner: Management accounting is worse than Financial Statement Accounting.

How managerial and financial accounting are similar

Managerial accounting and financial accounting do have a few things in common. Both need to have accurate numbers to work from: managerial accounting to use as a basis for creating budgets and estimates, financial accounting to comply with FASB standards in order to be deemed accurate and in compliance with regulations.

While managerial accounting works more as a problem solver, financial accounting shows you exactly what your business has accomplished to date.

In most companies, they are used simultaneously to create a more efficient, profitable business.

Though some accounting software applications do offer budgeting capability, many businesses use a spreadsheet application such as Microsoft Excel to create budgets and estimates.

What Makes Accounting Major So Hard?

The main reason why students find Accounting hard to learn is understanding the accounting concepts and how the transactions work.

For example, in courses such as corporate accounting, accounting concepts dictate what you can and cannot do, as well as how you must go about doing either.

However, once you get a grasp of the fundamentals of accounting it is not that hard to learn.

For example, getting a grasp of how debits and credits work

Debits reflect where money has gone (expenses and assets), while credits represent where money has come from (revenues, liabilities, and equities). 

There is still a lot of coursework in an accounting degree, and there is a lot more quantitative work required.

There are also many technical terms you need to learn, and you need to have a grasp of computer software as well.

If you are worried about mathematics you don’t have to be fantastic with mathematics, in fact, it is relatively simple. If you can add, subtract, multiply, and divide you will be fine.

As mentioned above, getting an understanding of the basics can be challenging, but once you have them down the degree gets much more comfortable.

Accounting is easier to grasp when logic and common sense are combined.

Think rationally about the problem and how everything is meant to come together when working on financial accounting.

The good news is there is plenty of books and courses online that you can use to help study and practice.

For example, Accounting for Dummies will equip you with knowledge on reading and understanding financial statements, reporting income and more.

The are plenty of online courses, such as Coursera provide a range of courses starting from Introductory to more Advanced.

Courses like Introduction to Finance and Accounting Specialization, offered by Wharton University that teaches introduction to corporate finance and accounting, emphasizing their application to a wide variety of real-world situations spanning personal finance, corporate decision-making, financial intermediation, and how accounting standards and managerial incentives affect the financial reporting process.

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Another course of interest may be, Fundamentals of Accounting Specialization, offered by Illinois University which teaches Accounting Basics for Managers and Entrepreneurs. Apply principles that underlie financial statements and facilitate business decisions and goals.

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And what is good about Coursera you receive academic and technical support through the Coursera support team or the Coursera community

And then there is everyone’s favourite channel Youtube, searching “Accounting” on youtube garnered thousands of responses. And best of all it’s free. 

 

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Management Accounting or Cost Accounting

Management accounting which is also referred as cost accounting is not a mandatory requirement of the law. Unlike financial accounting, an entity’s accountants practice managerial accounting in order to help its managers make business decisions that affect the entity’s future profits and cash flows. The accountants analyze the financial aspects of the entity’s operations and draw conclusions regarding their efficiency and effectiveness. Managerial accountants perform a wider gamut of analyses than do financial accountants, including analyzing the profit contributed by different products or business segments of an entity; the effect on profits of changing the entity’s cost structure (e.g. replacing fixed expenses such as sales salaries with variable costs such as sales commissions); the minimum number of units that an entity must sell in order to achieve a $0 net operating profit (the “break-even point”); or the effect on the entity’s owners’ wealth of engaging in a given project (e.g. net present value, internal rate of return, payback period, profitability index, etc.). Because managerial accounting reports are generally unique to a given entity, there are no standard reporting formats or accounting or reporting principles that guide them. Furthermore, they are generally not audited by an independent entity because outside stakeholders do not rely upon them; however, the entity’s internal auditors may review the reports as part of their responsibilities.

Topics covered in Management Accounting

  • Product Costing
  • Cost Accumulation
  • Process Costing
  • Activity Based Costing (ABC analysis)
  • Cost Behavior
  • Cost Estimation
  • Cost-Volume-Profit (CVP) Analysis
  • Absorption Costing
  • Variable Costing
  • Standard Costing
  • Flexible Budgeting
  • Relevant Costing
  • Cost Management Tools
Professional Qualifications of a Management Accoun

Professional Qualifications of a Management Accountant

Though they need not be licensed or certified, most management accountants belong to the Institute of Management Accountants (IMA) and adhere to its Statement of Ethical Professional Practice. Certified Management Accountants (CMAs) are considered to be experts in management accounting. They must demonstrate their expertise in financial reporting, planning, performance, and control; and financial decision making (including professional ethics) by passing a rigorous two-part examination, holding a bachelor’s degree from an accredited college or university, being a member of the IMA, and having at least two years of experience in management accounting or financial management. They must complete continuing education classes, including those in ethics, in order to retain their certifications.

Differences Between Managerial and Financial Accounting

Managerial accounting helps your business:

  • Operate smoothly
  • Determine income
  • Value inventory
  • Identify opportunities
  • Find efficiency issues that are affecting the company’s bottom line
  • Forecast trend
  • Set selling prices
  • Set strategies
  • Determine finance allocation

Managerial accounting is focused on:

  • The parts of your business, rather than the whole.
  • Problem-solving
  • Estimates
  • Internal Reports
  • Few to no standards
  • Systems
  • The future
  • Asset productivity

Unlike financial accounting, there are no set reporting deadlines. Managerial accounting staff can produce reports at any time – weekly, monthly, or whenever someone requests them.

Managerial accounting reports include:

  • Budget reports
  • Accounts receivable aging reports
  • Cost managerial accounting reports
  • Performance reports

Financial accounting:

  • Tracks and calculates business income and expenses
  • Is essential for tax preparation (and is often responsible for it
  • Generates financial statements like balance sheets, cash flow statements, income statements, and stockholder equity statements.

Financial accounting is focused on:

  • The business as a whole, rather than the individual parts
  • Profitability – financial accounting really only cares if a business is making a profit or not. You can get some insight into business efficiency, but other than that the numbers won’t be able to tell you where any problems are or how to fix them
  • Facts – everything must be accurate and precise for tax and investment purposes
  • Reports for external users like lenders
  • High standards – consider that the U.S Teac code has more than 73,000 pages and this is just one of the things financial accounting has to address. Then it’s easy to see why they have to be so strict about everything
  • Profits – there’s no focus on individual systems here. Instead, all that matters is if the business is generating profit. If any financial accounting report indicates the business as a whole is dealing with a loss, then the managerial accounting department steps in to conduct reports to find and fix the issues.
  • The past – a big part of how financial accounting differs from managerial accounting is that here managerial accounting makes estimates for the business’ future, financial accounting reports on the facts based on what has already occurred within the business. Financial reports are put together according to strict accounting standards and built into a format that’s easy to understand. When you read a financial report, you’re looking at information based on what happened last month, last quarter, last year, or maybe even last week – depending on how quickly the report was generated.
  • Asset valuation – where managerial accounting is concerned with whether or not an asset like an assembly machine is productive, financial accounting is in charge of knowing how much the machine is worth (its value) after three years in full-time service on the production line.

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