Did you know, according to the American Institute of CPAs, more than 1.3 million accounting professionals work in the United States? And out of all these accounting professionals, about 60% choose to specialize in financial accounting, while the other 40% specialize in managerial accounting.
So, what’s the difference between financial accounting and managerial accounting? And which one should you choose if you’re looking to enter the field?
In this article, we’ll compare and contrast financial accounting and managerial accounting, and we’ll help you decide which one is right for you.
What Is Financial Accounting?
Financial accounting is the process of preparing financial statements for a business. These financial statements include the balance sheet, income statement, and cash flow statement.
A primary goal of financial accounting and managerial accounting is to provide business decision-makers with information useful to them. This information can be used by shareholders, creditors, and managers to assess a company’s financial health and make informed decisions about the future of the business.
What Is Managerial Accounting?
Managerial accounting is the process of identifying, measuring, analyzing, and interpreting financial information to help managers make informed decisions about the future of a business.
The goal of managerial accounting is to help managers make informed decisions about pricing, product development, and investment decisions.
Financial Accounting vs. Managerial Accounting
So, which one should you choose? Here’s a summary of the key differences between financial vs. managerial accounting:
1. Purpose
Financial accounting provides information that is useful in making business decisions.
On the other hand, the purpose of managerial accounting is to help managers make informed decisions about pricing, product development, and investment decisions. Short- and long-term decisions can also be made based on managerial accounting information.
2. Audience
The audience for financial accounting information is primarily shareholders, creditors, and investors, whereas the audience for managerial accounting information, is mainly managers.
However, administrative-accounting information can also be useful for shareholders, creditors, and investors.
3. Scope
The scope of financial accounting is limited to financial information. In comparison, the scope of managerial accounting is much broader and includes both financial and non-financial information.
In addition, managerial accounting can be used to make decisions about short-term and long-term strategies.
4. Focus
The focus of financial accounting is on historical data, whereas the focus of managerial accounting is on future data.
5. Methods
The methods used in financial accounting are largely based on Generally Accepted Accounting Principles (GAAP).
However, managerial accounting uses methods that are not bound by GAAP (but follow certain rules and regulations) and can be tailored to specific needs.
Similarities Between Financial Accounting vs. Managerial Accounting
There are several similarities between managerial and financial accounting.
Financial accounting must comply with FASB standards to be judged accurately and comply with rules. In contrast, managerial accounting must use accurate statistics to establish budgets and estimations.
On the other hand, financial accounting tells you exactly what your company has accomplished to date, but managerial accounting is more of a problem solver.
Most businesses are employed in tandem to generate a more efficient and profitable operation. Although some accounting software packages provide budgeting features, many firms choose to develop budgets and projections using a spreadsheet program like Micros.
So, Which One Is Better?
The answer to this question depends on what you’re looking for in an accounting career. If you’re interested in preparing financial statements and providing useful information in making business decisions, financial accounting is the better choice.
While managerial accounting is better when you’re helping managers make informed decisions about pricing, product development, and investment.
Financial Accounting vs. Managerial Accounting: Which One Leads To A Lucrative Career?
There’s a misconception that accounting is all about crunching numbers. However, both branches of accounting – financial and managerial accounting – are poles apart. If you’re still on the fence about deciding which is better, let’s explore further:
Financial Account As A Career
If you are interested in a career in accounting, then financial accounting is the way to go. Financial accountants are responsible for preparing statements and providing information useful in making business decisions. This accounting field is all about recording, classifying, and summarizing financial transactions to provide insights into a company’s financial health. Moreover, financial accounting is governed by Generally Accepted Accounting Principles (GAAP).
Managerial Accounting As A Career
On the other hand, managerial accounting is the way to go if you are interested in helping managers make informed decisions about pricing, product development, and investment decisions. The professionals in this field use financial and non-financial information to decide a company’s future.
Most businesses follow GAAP for financial accounting purposes. So, if you are interested in a career in accounting, it is advisable to learn both financial accounting and managerial accounting. Both branches offer lucrative career opportunities.
So, Which One Should You Choose?
Another way to decide which path is right for you is to speak with a professional in the field. Both financial accounting and managerial accounting are lucrative careers with many growth opportunities. The world of accounting is constantly evolving, so it’s important to stay up-to-date on new developments.
A career in the finance world that is both stable and secure, accounting offers two very different career options: financial accounting and managerial accounting. These accountants have different focuses within their field, use other methods to come to their conclusions, and report to different people within a company. Financial accounting focuses on historical data to generate financial statements, while managerial accounting focuses on using that data to make decisions about a company’s future.
Bottom line
Financial accounting is the better choice if you’re interested in preparing financial statements and providing useful information in making business decisions. Managerial accounting is the better choice if you’re interested in helping managers make informed decisions about pricing, product development, and investment.
Both financial accounting and managerial accounting are lucrative careers with many growth opportunities. The world of accounting is constantly evolving, so it’s important to stay up-to-date on new developments. Speak with a professional in the field to decide which path is right for you.
Read Also:
