An accountant’s role is integral to an organization’s financial success. Financial accounting and managerial accounting are two of the largest branches of the accounting field. Professionals looking to pursue business careers with a focus in accounting need to discern the difference between financial accounting vs. managerial accounting. Those interested in furthering their careers in one of these roles should consider an advanced degree in accounting.
Defining Financial Accounting and Managerial Accounting
Organizations benefit from having both financial and managerial accounting professionals. Having strong performers in these jobs can provide organizations with financial stability and growth potential. People considering either a managerial or financial accounting career should understand what each role entails.
Financial accountants produce documents such as income statements and balance sheets, which external parties (investors, industry regulators) use. The statements document an organization’s financial performance over a period of time, as well as its overall financial health. Agencies such as the Securities and Exchange Commission (SEC) regulate the work of financial accountants, who produce these statements.
Managerial accountants produce financial documents that organizations use internally. The documents account for company resources such as raw materials, labor or equipment in ways that help executives maximize efficiency.
Organizations can use both financial accounting and managerial accounting to develop comprehensive strategies to maintain and grow their business.
Similarities Between Financial Accounting vs. Managerial Accounting
Professionals pursuing accounting careers should understand the overlaps between financial accounting and managerial accounting. Both accounting branches use analytics to gather data and develop insights. Accountants help their organizations understand financial data through techniques such as ratio analysis, vertical analysis and horizontal analysis.
- Ratio analysis. Ratio analysis provides insight into efficiency, liquidity and profitability. The method uses ratio metrics, such as profitability ratios, efficiency ratios, solvency ratios and liquidity ratios, to “calculate statistical relationships,” according to Investopedia.
- Vertical analysis. Vertical analysis analyzes financial statements where each line item represents a percentage of the base figure. For income statements, each line item represents a percentage of gross sales.
- Horizontal analysis. Horizontal analysis provides accountants with financial information that depicts financial change over a period of time, typically two years or more.
Both financial accountants and managerial accountants typically have at least a bachelor’s degree in an accounting-related discipline. For success in specialized roles, they need to develop additional skill sets. A strong understanding of accounting is a requirement, as well as a solid foundation in management theory principles. Individuals seeking leadership roles in the field should consider pursuing an advanced degree in accounting.
Differences Between Financial Accounting vs. Managerial Accounting
Although financial accounting and managerial accounting complement each other in an organization’s financial strategy, professionals considering one of these careers should understand the differences between the disciplines. Managerial accounting focuses on an organization’s internal financial processes, while financial accounting focuses on an organization’s external financial processes.
Managerial accountants focus on short-term growth strategies relating to economic maintenance. For example, managerial accountants can perform a make-or-buy analysis to determine the financial soundness of producing a part to help with manufacturing a product.
Financial accountants focus on long-term financial strategies relating to organizational growth. The financial reports that these accountants produce follow established formats and abide by Financial Accounting Standards Board (FASB) rules and regulations. The guidelines are outlined in the generally accepted accounting principles (GAAP), which all publicly traded companies in the U.S. have adopted.
Compliance with established formats is vital for financial accountants, who must prepare reports for shareholders and potential investors as well as executives. Managerial accountants, however, generally prepare their reports for internal audiences.
Managerial accountants typically command higher salaries than financial accountants. The median annual salary for financial accountants is about $55,500, according to July 2020 data from PayScale. The median annual salary for managerial accountants is about $72,100, according to August 2020 data from PayScale.
Explore a Fulfilling Career in Financial or Managerial Accounting
Professionals interested in building a career in financial accounting or managerial accounting should consider an advanced degree in accounting to meet the ever-changing demands of the field. Starting with a solid knowledge base and skill set will help students keep pace as technology and financial regulations evolve.
The University of North Dakota’s online Master of Accountancy program can provide prospective students with the necessary skills to take on the challenges of a dynamic field. In particular, the program’s Practitioner track can help students with accounting experience hone their leadership skills and develop into trusted advisors for organizations as financial accountants or managerial accountants. Discover more about how the University of North Dakota’s online Master of Accountancy can prepare students for success in their careers.
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Houston Chronicle, “The Differences Between Financial Accounting & Management Accounting”
Houston Chronicle, “Why Management Accounting Is Important in Decision-Making”
Investopedia, “Financial Statement Analysis”
Investopedia, How Does Financial Accounting Help Decision-Making?
Investopedia, “How Financial Accounting Differs from Managerial Accounting”
Investopedia, “Ratio Analysis”
Investopedia, “Vertical Analysis”
PayScale, Average Financial Accountant Salary