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What is the Difference Between Financial and Management Accounting?

While there are many similarities between Financial and Management accounting there are a few key differences that set them apart. The differences are predominantly centered around compliance, the audience, and typical accounting standards. 

 

Financial Accounting

Financial accounting is used to show the financial strength of an organization to its external stakeholders. Implementing good financial accounting lets potential investors, stockholders, the board of directors, and other financial institutions see how the business has performed during a specific time period. These findings are based on reports that are filed on a yearly basis. While many businesses can choose who they’d like to share their financial data with, for businesses that are publicly traded on the stock market, the reports must be made public. 

 

Management Accounting

Management accounting is used to identify, measure, and analyze financial information to be shared internally so that business managers and directors can better understand how to make decisions that help them reach their goals. Management accounting will vary from company to company based on the intent of the management team. Another differentiating factor between management and financial accounting is the fact that managerial accounting is not solely based on data from the past but more often includes current and future trends. Due to competition in the business world, management teams have to continually make important decisions with little time, so it is vital for management account reports to contain data that will help make future decisions.

 

The Differences

While financial and management accounting reports are essential for businesses to understand their growth and help make important decisions, there are differences that set the two apart.

 

Financial Accounting

  • For external use
  • Discloses the company performance/financial health
  • Created for investors, creditors, and industry regulators 

Management Accounting

  • For internal use
  • Created for the management team
  • Helps make future business decisions
  • Helps set realistic goals
  • Motivates strategic planning

 

At Hylen our team of professionals can help provide you with guidance and lead you towards the best option for your business. Whether your business needs help with internal management reports or simple help gaining a better understanding of the finances, with our experts there’s a solution for you. 

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