Difference Between Financial Accounting and Managerial Accounting:
Big picture. Accounting can be divided into two aspects: Financial Accounting, essentially involving Compliance and Managerial Accounting which is geared toward providing information and data to business owners to help them make better decisions.
Accounting for Compliance:
Regarding compliance, whether your accountant is preparing financial statements or tax forms, there are certain laws, principles, rules or regulations that need to be followed to ensure that the statements or forms reflect the proper accounting treatment. Some common examples include revenue recognition for accrual-basis businesses, inventory cost flow assumptions (average cost, LIFO, FIFO) or the deductibility (or non-deductibility) of certain expenses for tax purposes vs. expenses that are classified on a Profit & Loss Statement-there are differences. Compliance is concerned with reporting past activities.
But, being an Accountant means more than just knowing how QuickBooks works. Your Accountant should know the proper principles to apply to ensure that your statements reflect Generally Accepted Accounting Principles or GAAP.
Importance of Managerial Accounting:
Managerial Accounting is concerned with taking existing accounting/financial data and essentially filtering it to only include information that has an ECONOMIC IMPACT toward making future decisions. An example would be the depreciation on assets. Depreciation, in many cases is an expense that just reflects the passage of time, it does not have any bearing on the productive capacity of an asset for future decision making.
Accounting for Compliance
- Adhering to laws, regulations and accepted principles
- Maintaining business standards and proper protocols
- Regulatory oversight
- Codes of conduct
- Concerned with reporting past activities
- Involves including only data that has an economic impact
- Is NOT part of compliance
- Is for (internal) management decision making
- Concerned with providing information for future decisions