Your Ask Joey ™ Answer

Difference between Managerial and Financial Accounting

The overall objective in managerial accounting, which is often referred to as “cost accounting” is to provide useful information for internal decision makers to use. This is different from the overall objective of financial reporting as the general objective is to provide information for external users.

In addition, managerial accounting is used for projections and running the business on a daily basis. There are no official set of accounting standards for managerial accounting like there is for financial accounting (U.S. GAAP).

Below is a summary for each type of accounting:

Managerial Accounting

Intended users: The intended users of managerial accounting financial statements is the internal management team of the company. Management would create these financial statements to help them run the business efficiently and effectively. There are no rules when it comes to managerial accounting! Its the wild wild west!

Standards: None! There are no standards that must be followed when creating financial statements using managerial accounting.

Focus: When it comes to the focus or the purpose of managerial accounting, its to create financial information that cane be used for forecasting, budgeting, or planning.

Frequency: Managerial accounting financial statements are prepared on an as-needed basis. Some management teams prefer to have the financial information prepared weekly while others may only do it on a quarterly basis. It’s completely up to the management team of the company!

Financial Accounting

Intended users: The intended users in financial accounting financial statements are investors, creditors, etc. Financial accounting statements would not typically be used for internal decision making.

Standards: For companies located in the United States, U.S. GAAP must be followed. Outside of the United States, companies would follow IFRS or a similar set of reporting standards.

Focus: The focus is on the historical results and summarizing the results over a specific period of time.

Frequency: In financial accounting, financial statements are typically prepared on a monthly basis, with results communicated to the general public on a quarterly and annual basis.

Back To All Questions

You might also be interested in...

  • Discontinued Operations on the FAR CPA Exam

    Overview of Discontinued Operations In financial reporting, discontinued operations refer to a component of a company’s core business or product line that have been divested or shut down. Discontinued operations will be reported (net of tax) separately from continuing operations on the income statement. The reason that discontinued operations are reported separately is so that...

  • Equity Method Excel Workbook

    If you would like to use the Excel workbook that was used to create the Universal CPA lecture on the equity method, please click the link below to download the Excel workbook: Equity Method Lecture Example

  • How Hard is the CPA Exam?

    So you’re thinking about taking the CPA exam? Whether you have a dream of becoming a tax advisor, feel as though you need public accounting experience, or just want to solidify your business acumen, the CPA license is one of the most prestigious and well respected licenses in the business world. The exam itself is...