Differences Between Financial and Managerial Accounting

Financial and managerial accounting differ in many ways. Probably the most glaring difference is how the two are governed. As you know, financial accounting is governed by Generally Accepted Accounting Principles (GAAP). This is necessary because of who uses the information: business stakeholders, investors, debtors, government agencies, suppliers and many more.

Managerial accounting, however, is not governed by GAAP or any other specific governing rules. This is possible because company employees are the only ones using the information, so there is no need to make all companies' information look the same. Each company is free to produce managerial accounting information that best suits its needs. However, you will find that most companies produce very similar information, and that is what will be covered in this course: best practices.

The major differences between financial and managerial accounting are shown in Figure 1.1.
 

Figure 1.1. Financial Accounting vs. Managerial Accounting

Financial Accounting	Managerial Accounting
External users	Internal users
Governed by GAAP	Not governed by GAAP
Historical information	Forward looking
Uses estimates only when necessary	Relies heavily on estimates