Difference Between Financial Accounting and Management Accounting: Check Definition, Scope, Courses
Financial Accounting and Management Accounting are two different branches of accounting but together, form the foundation of key business operations. Read here all about Financial Accounting vs Management Accounting.
Financial Accounting vs Management Accounting
Financial Accounting and Management Accounting are the two branches of Accounting required for maintaining financial health of the organization and improving revenue. The two perform completely different roles and purpose but are equally important for making business decisions. Since accounting forms the basis of all economic activities of an organization, it needs to have dedicated teams to manage various accounting tasks. While accounting is all about reading and interpreting data, approach towards the data changes with goal. In this article, we have shared the difference between financial accounting and management accounting.
- Financial Accounting vs Management Accounting: Overview
- What is Financial Accounting?
- What is Management Accounting?
- Difference Between Financial Accounting and Management Accounting
- Financial Accounting Courses
- Management Accounting Courses
Financial Accounting vs Management Accounting: Overview
Both Financial Accounting and Management Accounting need deeper understanding of requirements and practical application for a given business situation. While Financial accounting deals with reporting of financial transaction, management accounting is all about budgeting and forecasting.
What is Financial Accounting?
Financial accounting refers to recording, analyzing and reporting of company’s financial transactions. It involves preparing balance sheets and financial statements of investors, creditors, regulators and other external stakeholders. It also involves maintaining historical records, which can be used to make future investments and other business decisions.
Financial accounting is a critical activity, which requires transparency in reporting. The financial records are prepared as per the accepted norms, standardized by the government. The financial statements must follow Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). Further, the organizations are supposed to follow Schedule III of the Companies Act, 2013, for reporting income, cash flow, taxes, etc.
What is Management Accounting?
Management Accounting or Managerial Accounting is the activity of collecting and analyzing financial data to aid in making effective decisions regarding business plans and investment. Accounting experts, provide insightful data to the organization basis which future decisions can be made. Managerial accounting includes budget forecast, cost analysis, expected return, resource analysis, etc.
Difference Between Financial Accounting and Management Accounting
For better understanding of two, tabulated below are the difference between financial accounting and management accounting:
| Particulars |
Financial Accounting |
Management Accounting |
|---|---|---|
| Definition |
Branch of accounting that involves recording, summarizing and reporting business transaction or cash flow. |
Branch of accounting that involves using historical and predictive data to provide key insights for making business decision. |
| Purpose |
Reporting financial health of the organization for external stakeholders |
To provide key insights for making financial decisions |
| Compliance |
GAAP or IFMR |
Organization specific |
| Auditing |
Financial statements require independent audit |
Does not require independent/external audit |
| Users |
External stakeholders, tax authorities |
Internal management |
| Purpose of statements |
Data used for decision making |
Data used for decision making |
| Time span |
Reports are prepared for fixed span of time. Eg: Yearly or Quarterly |
No fixed time span for management accounting reports. Done basis the need |
| Basis |
Historical data |
Historical and predictive data |
| Format |
Follows standardized format of reporting |
Company specific format |
| Verifiability |
Data reported in financial statement is verifiable |
Data reported can be predictive hence, not verifiable |
| Examples |
Balance sheet, income statements, cash flow statements |
Budget, cost analysis, variance analysis, KPIs, etc. |
Financial Accounting Courses
Listed below are some of the popular financial accounting courses in India (long term as well as short term).
- Certificate in Financial Accounting (3 to 6 months) covering bookkeeping, journal entries, ledgers, and trial balance.
- Diploma in Financial Accounting (DFA)
- Com in Accounting & Finance
- Com in Accounting & Finance / MBA in Finance
- Chartered Accountancy (CA)
- International Certifications- ACCA (UK), CPA (US), CIMA
- Online Courses
Management Accounting Courses
Listed below are some of the popular management accounting courses in India (long term as well as short term).
- Certified Management Accounting (CMA)
- Post Graduate Certificate in Management Accounting
- Bachelor of Science in Management Accounting
- Management Accounting Online certifications
- Management Accounting - ACCA
Bottomline
While financial accounting is necessary to monitor and maintain financial health of a company, management accounting plays a key role in making effective business decisions, based on its future-oriented analysis. Both use historical data but for different purposes, which are inter-related. Those planning to make a career in accounting, must assess and analyse their interests vs skills to choose from these two specialized branches of the field.
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