You must be thinking about studying finance which eventually brought you here. Well, it is a universal fact that finance is an ever-green field with limitless scope. You will find here key points on two leading fields of finance; financial accounting and managerial accounting. When it comes to selecting any one of them, i.e. you need to look at the course outline and your interest area There are many similarities between managerial and financial accounting since both of them use information from the enterprise accounting system. One of the sections of this system is production accounting, which accumulates data on production costs necessary in both financial and managerial accounting. For instance, production accounting data is usually used to help specialists in setting prices for manufactured products. It is an application of the information in management accounting. The same production accounting data are used to estimate stocks when compiling the balance sheet of an enterprise.
However, these two types of accounting are significantly different from each other. Here is the list of noteworthy differences:
a) The Purpose Of Accounting
The purpose of financial accounting is to provide the data necessary for the preparation of financial statements (financial documents) of an enterprise. The same financial statement is intended for its own administration and for external users. For external users, investors, and lenders it helps to provide them with an objective assessment of the financial situation of the enterprise, its solvency, creditworthiness, assess the degree of profitability of investments in this enterprise. Financial accounting must be carried out in accordance with clearly defined requirements and standards.
Managerial accounting is the main communication system within the enterprise. Its purpose is to provide relevant information to the managers responsible for achieving specific production indicators. Management accounting provides the collection and processing of information for planning, management, and control within the organization.
b) Sources Of Information
For financial accounting, information sources are only the data of the enterprise accounting system. It accumulates financial information and also the elements of the tax system.
For managerial accounting, information sources and data from the enterprise accounting system is information on the norms of consumption of material resources, technological waste, and research on the market situation. The managerial accounting further covers the reports on scientific research, the possibility of using their results in appropriate production conditions, the number of penalties for non-fulfilment by the parties of clauses of economic contracts, etc.
c) Compulsory Accounting
Financial accounting is the official accounting, its maintenance is mandatory for all enterprises and organizations without exception. Financial reporting documents are submitted to the tax authorities, are subject to audit, and should be published.
Whether or not management records should be kept, is decided by the management of the enterprise itself. No external bodies or organizations have the right to indicate what is necessary or what should not be done. Therefore, there is no point in collecting and processing information whose value for management is lower than the cost of obtaining it.
D) The Main Users Of Information
Financial accounting is sometimes called external accounting. As a rule, its results are published, and the reports do not only contain financial information, but also advertising materials demonstrating the success of enterprises in their activities and their new products. Users of financial statements are traditionally located outside the enterprise. This information is necessary for both fiscal government bodies and company shareholders, holders of bonds and other securities, and potential investors.
Management accounting can, accordingly, be called internal accounting. Its results are used only by the management personnel of the enterprise. This is a kind of “kitchen” of the enterprise, where materials are prepared for managers.
e) Accounting Rules
Financial accounting is clearly regulated. It is regulated not only by state regulations but also by international standards.
Norms and rules of management accounting are established by the enterprise. The management staff of the organization can follow any internal accounting rules, depending on the usefulness of these rules. The main argument in substantiating the rules of management accounting is whether it is useful.
F) Forms Of Presentation Of Information
Financial information is submitted to the statistical authorities, to the tax inspectorate in the forms and is then approved by the Ministry of Finance of the respective country’s Federation, the Ministry of Taxes and Levies and other central departments. They are the same for all enterprises, regardless of their legal form.
The results of management accounting can be presented in any form; mandatory forms and many other types of form for the presentation of the financial situation.