Accounting is a broad field with many applications. Some accountants focus all of their efforts on tax returns, while others do nothing but investigate the forensic evidence in accounting records. Managerial accounting and financial accounting are similar in that they're financially focused, produce financial reports, have a specific set of users and require a deep understanding of accounting theory.
Both Provide Accounting Information to Users
Both managerial and financial accounting exist to provide useful financial information to users. Who those users are differs, though. The Financial Accounting Standards Board states that the purpose of financial accounting and reporting is to provide information to existing and potential investors, lenders and creditors so they can make informed decisions about lending or buying and selling equity and debt instruments.
Managerial accounting, on the other hand, seeks to provide relevant information to internal company managers so they can make decisions about how to better run the company. In this sense, financial accounting focuses on the needs of outside stakeholders and managerial accounting focuses on the needs of internal users.
Both Practices Generate Financial Reports
Financial accountants and managerial accountants both put accounting information in a report format for managers and executives to review. The formats, however, tend to be different. Generally accepted accounting standards strictly govern how financial accounting data is presented so that data can easily be compared across different companies. Financial accountants in publicly traded companies must generate the following documents:
- A balance sheet that shows company position at a certain period.
- An income statement that details expenses and revenues during a period.
- A statement of cash flows that shows how cash levels have changed.
- A statement of changes in stockholders' equity that shows how equity has changed.
Reports and formatting for managerial accounting are less regulated. Companies aren't required to perform managerial accounting, so there are no standards for what type of information reports must contain or how the information is presented. Generally, though, managerial accounting reports place a heavier focus on costs the company has incurred. A typical managerial accounting report may compare budgeted costs to actual cost, analyze sources of revenue or explore the relationship among cost, volume and profit.
Both Require Accounting Education Expertise
Managerial accounting and financial accounting are both widely recognized and accepted fields of accounting. Accounting programs typically require students to take classes in both managerial and financial accounting before they're awarded an accounting degree.
Companies value both fields and may require accountants to have specialized knowledge in the area or a certain certification. The certified public accountant designation -- CPA for short -- is the gold standard for accountants who want to practice financial accounting. The certified management accountant designation, or CMA, is a designation that focuses more specifically on the cost management, performance management and decision analysis that managerial accountants practice.
Based in San Diego, Calif., Madison Garcia is a writer specializing in business topics. Garcia received her Master of Science in accountancy from San Diego State University.