Financial accounting is the process of recording, classifying, and summarizing financial transactions to provide information that is useful in making business decisions. Managerial accounting is the process of identifying, measuring, analyzing, and interpreting financial information to be used by managers in making business decisions.
Financial accounting is primarily concerned with the preparation of financial statements, while managerial accounting is concerned with the interpretation of financial information and the use of that information to manage the business.
Difference:
One key difference between financial and managerial accounting is that financial accounting is required by law, while managerial accounting is not. Financial accounting is governed by generally accepted accounting principles (GAAP), which provide guidance on how financial statements should be prepared. Managerial accounting is not subject to GAAP, but there are ethical guidelines that provide guidance on how managerial accounting information should be used.
Another key difference between financial and managerial accounting is that financial accounting is focused on the historical record of the business, while managerial accounting is focused on the future. Financial accounting statements show what has happened in the past, while managerial accounting information is used to make decisions about what to do in the future.
Example:
Examples of financial accounting include the preparation of financial statements, the recording of transactions, and the analysis of financial data. Managerial accounting examples include budgeting, forecasting, and decision analysis.
Importance:
Financial accounting is important because it provides information that is used in making investment decisions. Managerial accounting is important because it provides information that is used in making decisions about how to run the business.