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Financial Accounting v/s Managerial Accounting

Financial accounting is a branch of accounting which records the financial transaction of an entity. The transactions are collected, recorded, classified, analyzed, summarized and presented in a final report (balance sheet).

Managerial accounting or cost accounting is a process of identifying, analyzing and summarizing the various internal transactions of the organization for achieving the objectives of the company.

Issue Managerial Accounting Financial Accounting
Primary users It is used by the internal members of the organization. It is also used for the reference of external member’s of the organization.
Purpose of information It is used to plan, direct, control and decides the various functions of the organization. It is used to make investing and lending decisions.
Primary accounting product Internal reports which are useful to the management. Financial statements which is used for general purposes.
What is included? Managerial accounting is defined by management. Financial accounting is determined by Generally Accepted Accounting Principles(GAAP)
Underlying basis of information The internal and external transactions of the organization are used for forecasting purposes. The entries are based on historical transactions with external parties.
Emphasis The data must be relevant. Data must be reliable and objective
Business units It is used by the segments of the business. It is used by the company as a whole.
Preparations It is prepared depending on the managerial needs. It is prepared periodically (annually or quarterly).
Verifications Verification is made by the internal audit. Verification is made by the external audit.
Information requirements No requirements. SEC requires publically traded companies to issue audited financial statements.
Impact on employee behavior Careful consideration. Adequacy of disclosure.


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