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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. |
