Managerial Accounting vs. Financial Accounting

Lesson Transcript
Instructor: Tammy Galloway

Tammy teaches business courses at the post-secondary and secondary level and has a master's of business administration in finance.

Managerial and financial accounting differ in three main categories: audience, purpose, and statement preparation. Explore how each of these relates to accounting to understand the distinction between managerial and financial. Updated: 11/24/2021

Managerial or Financial?

Susan has worked at Watson and Wick for 10 years as an accountant. She's moved through the ranks and now she's being promoted to Director of Accounting. Susan's boss tells her, 'At Watson and Wick, you've performed numerous accounting duties. Going forward, your job function will be more purposeful and focused. You'll to be able to choose which accounting department will fit your career goals best, managerial or financial.

This is a big decision for Susan, so let's help her make it. To start, let's review the basics. As you may know, accounting is the measurement and performance of financial information. So what makes managerial accounting different from financial accounting? Let's compare and contrast managerial and financial accounting by discussing three differences: audience, purpose, and statement preparation.

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  • 0:03 Managerial or Financial?
  • 0:49 Audience
  • 1:33 Purpose
  • 1:56 Statement Preparation
  • 3:41 Lesson Summary
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Audience

The main difference between managerial and financial accounting is the user of the data. Managerial accounting provides financial information internally to executives, managers and employees. On the other hand, financial accounting focuses on external users such as lenders, investors and regulatory agencies. The purpose and the way the financial statements are prepared are dependent on who uses the information. The reports for internal users will be more flexible and focus on a specific purpose. Meanwhile, the data for external users require accountants to follow specific standards and rules.

It's important to note that financial accounting reports can be used by internal users; however, managerial accounting reports are typically not released to the public.

Purpose

The purpose of each type of accounting is also different and important to note. Managerial accounting helps management create and evaluate long and short term goals. Accountants will also provide financial data to help analyze the operations of the business. Financial accounting, on the other hand, provides an overview of the financial health of a business at a certain point in time such as quarterly or at the end of the year.

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