Today, I’m going to talk about managerial accounting vs financial accounting.
The two terms relate to different roles within accounting. There can be a lot of confusion regarding the many and varied roles accountants can take. This includes the differences between managerial and financial accounting.
Here’s the gist:
Managerial accounting aligns its goals with strategic decision-making and financial processes within an organization.
Financial accounting reports externally on the transactions and financial health of an organization.
As you pursue your career, it’s important to note that these two designations correspond to CMA vs CPA.
In this article, I’ll explain it all to help you identify the career path best suited for you.
Defining Financial Accounting and Managerial Accounting
Let’s start by adding more detail about each type of accounting.
What Is Financial Accounting?
Financial accounting focuses on preparing an organization’s financial data for external use. This means that the presented data – whether quarterly or annual – isn’t necessarily for the organization itself but for those outside of the organization.
What Is Managerial Accounting?
While financial accounting is a specific and recognized area of accounting, managerial accounting is more of a practice. Managerial accounting focuses on identifying, preparing, and presenting data to those – often leaders – within the organization. The data is kept internally and rarely leaves the organization.
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Similarities Between Managerial and Financial Accounting
When looking at the objectives and the kinds of information they handle, managerial and financial accounting overlap in a couple of ways. One of the primary similarities is the basic content they deal in.
Accountants in both roles analyze, gather, and present data. The data they work with includes financial information, such as:
- Expenses
- Revenues
- Equity
- Liabilities
- Assets
Managerial and financial accounts also spend a lot of time creating reports. These reports must be accurate, transparent, and consistent.
Differences Between Managerial and Financial Accountants
Despite their similarities, managerial and financial accounting aren’t the same job. You’ll need to understand these differences to ensure you follow the right career path.
Purpose and Audience for Managerial vs. Financial Accounting
The audience managerial and financial accountants serve is different.
If you choose one of these roles, you’ll primarily operate in the internal and external use of information.
Managerial accountants operate within a company, supporting the dissemination of financial data and reports to leaders.
Financial accountants, on the other hand, primarily help those outside of the organization. This includes stakeholders, creditors, investors, as well as regulatory bodies.
Focus of Managerial Accountants vs. Financial Accountants
Managerial accountants focus internally on projects, metrics, and standards. They need to understand how the data and information applies to internal organization members.
The focus could be granular and specialized to an area or a department within a company.
Managerial accounting assesses how an organization functions using data related to, but not limited to:
- Expenses
- Budgets
- Sales
- Cashflow
- Non-financial factors
Financial accounting has a broader focus, providing data and information to external parties. Financial accountants don’t spend time on the finer details of internal reports.
Instead, the focus is on:
- Revenue
- Expenses
- Assets
- Liabilities
- Equity
These metrics demonstrate how well an organization is doing financially.
External parties will then use this information to make decisions that will affect the relevant organization.
Decision-Making Driven by These Two Types of Accountants
Managerial accounting assists internal decision-makers. Managerial accountants are often key members of the leadership team, usually in the role of Corporate Controller, or CFO.
The decisions their data informs include how to plan, control, and optimize a company’s operations and financial health.
These decisions often focus on specific areas or details within the organization. They may also include non-financial information to provide an in-depth view of the organization.
Strategic direction can help shape:
- Revenue growth
- Internal structure
- Change management
- Financial decisions
- Technology adoption
The information collected and presented by managerial accountants may also be used to evaluate or assess operations and efficiencies, among other business dynamics.
Financial accountants generate reports used to:
- Prove financial status
- Scrutinize a company’s value
- Evaluate a company’s compliance or records
This information allows external stakeholders or regulatory bodies to assess how an organization operates.
Financial accounting provides clear reports on an organization’s performance, risk management, revenues, and overall financial health.
What Job Titles Do Managerial and Financial Accountants Have?
If these ideas have got you thinking in one direction or another, here’s how to investigate managerial or financial accounting jobs further.
Many job titles fall within managerial accounting. These include the accounting manager, budget analyst, chief financial officer, business analyst, operations manager, internal auditor, and more.
If you have an interest in business strategy and leadership, I encourage you to consider the many CMA career opportunities.
Financial accounting also has a number of possible job titles, including:
- Financial reporting analyst
- Tax accountant
- Audit associate
- Financial controller
- Financial manager
There may be an overlap in job duties between managerial and financial accountants. That’ll depend on industry, company size, and work experience.
Managerial vs. Financial Accounting: What’s Right for You?
A clear understanding of the differences between managerial and financial accounting is crucial.
This is especially important as you consider how to specialize, creating value through your chosen career.
And if you’d like another way to prove your worth in the job market, you can always get your Certified Managerial Accountant (CMA) certification. CMAs earn 58% more annually than their non-certified peers.
If you’re curious about becoming a CMA, check out our 16-week Accelerator program.
Hi, I’m Nathan Liao (aka the CMA Coach)! For the last 10 years, over 82,000 accounting and finance pros came knocking at my door seeking guidance and help. If you’re also aiming to conquer the CMA exam on your very first try—without wasting away time or money—you’ve found your ultimate guide. Dive in deeper to discover more about me and the dedicated team that powers CMA Exam Academy. Click here and let’s embark on this journey together!
