If you’re a college student interested in pursuing a career in accounting, it’s important to understand the difference between financial accounting and managerial accounting.

Financial accounting focuses on the reporting of an organization’s financial information to external stakeholders, while managerial accounting focuses on the use of this information by internal managers to make decisions about running the organization.

While both types of accounting are important, they require different skills and knowledge. In this article, we’ll break down the key differences between financial and managerial accounting so you can decide which path is right for you.

What is Financial Accounting?

Financial accounting is the process of recording, classifying, and summarizing financial transactions to provide organizations with the insight necessary to make intelligent business decisions.

Financial accounting is an important tool for any business to understand their financial standing. It is the way a company keeps track of their income and expenses and ultimately provides an overall snapshot of the finances.

What is Managerial Accounting?

Managerial accounting is the process of identifying, measuring, analyzing, interpreting, and communicating information that helps managers make decisions to fulfill an organization’s goals.

Managerial accounting is an invaluable tool for decision makers and those who wish to drive the success of an organization. It carefully identifies and measures financial information, analyzing it through detailed interpretation to identify cost-effective solutions that help organizations reach their desired goals.

Managerial accounting differs from financial accounting as its focus lies in looking towards the future instead of evaluating historical data. These projected scenarios can be easily modified depending on changes in variables to give a more comprehensive view of potential results. Thus, managerial accounting provides essential insight into how an organization can plan its resources to navigate towards achieving tangible objectives.

Managerial accounting looks beyond just monetary figures — it examines financial data to devise plans and strategies that can help improve the business. It is like putting together a puzzle — taking all of a company’s financial pieces and making sure they fit in perfect harmony with each other.

A Different Mindset – Examining History or Predicting the Future?

Financial accounting and managerial accounting are both important for keeping businesses running, but there are key differences between them.

Financial accounting is concerned with reporting on the financial health of a company using past data — this helps stakeholders or investors see how a business has been doing over time. Managerial accounting, however, focuses on providing future-oriented reports that can help managers make decisions about where to allocate resources in the future — things like production costs, potential investments, customer requests, and more.

Both types of accounting provide useful insight into success metrics and the health of an organization.

GAAP Rules or Your Rules?

Financial accounting is a process that focuses on preparing financial reports, such as balance sheets, income statements, and cash flow statements, in accordance with generally accepted accounting principles (GAAP). GAAP provides a comprehensive set of regulations to ensure the accuracy and transparency of financial information.

Managerial accounting, on the other hand, is concerned with providing internal analysis and decision-making support to managers within an organization. As opposed to financial accounting, managerial accounting is not subject to external regulations like GAAP. Rather, it follows whatever rules the firm sets internally to guide its operations. This flexibility gives managers greater latitude in their decision-making but also carries a higher risk than financial data that must follow GAAP rules.

Internal or External Users?

Accountants generate financial statements for external users like investors and creditors, while managerial reports serve internal managers to make informed choices.

Financial accounting is an essential element of running a business as it allows external stakeholders to have an understanding of the company’s finances. Financial statements are prepared by financial accountants, who ensure that the information is accurate and up-to-date, to be used by these groups when making decisions.

On the other hand, managerial accounting is used internally by managers like decision makers within an organization. They use various managerial reports to evaluate past results and plan for the future, helping them to make better decisions in areas such as budgeting and forecasting.

Therefore, although both financial accounting and managerial accounting play a crucial role in running a business efficiently, their purpose differs greatly and influences different stakeholders.

What Should I Major In?

Your major will depend on whether you are more interested in a financial accounting or managerial accounting track.

Financial Accounting Track

To become a financial accountant, you’ll need to major in accounting or a related field such as finance, taxation, or business administration. While completing your degree program, it’s important to take courses in auditing, financial statement analysis, cost accounting, and performance measurement. You may also want to develop your computer skills in applications, such as Microsoft Excel, Access, and QuickBooks, or learn about the laws governing companies’ financial statements.

Depending on your role, after college, you may need to pass a certification exam administered by the American Institute of Certified Public Accountants (AICPA).

Managerial Accounting Track

To pursue a career in managerial accounting, you should major in accounting, finance, or business. A degree in any of these areas will equip you with the knowledge and skills necessary to be successful in this field. Many universities also offer specialized degrees related to managerial accounting, such as an MS in Accounting and Financial Management or an MS in Business Statistics. Data science is also playing an increasingly important role in financial accounting.

Additionally, obtaining certifications such as Certified Management Accountant (CMA) or Certified Public Accountant (CPA) can help set you apart from other candidates when applying for managerial accounting jobs.

Financial Accounting Jobs

Financial accounting is an in-demand and lucrative career path for many professionals. According to the U.S. Bureau of Labor Statistics, the 10 highest paying jobs in financial accounting include:

1. CFOs — CFOs or chief financial officers are the top financial management position within an organization. They are responsible for developing and overseeing the financial strategies that help guide a business to success. They manage budgeting, accounting, investments, risk management, taxation, and reporting activities. They provide vital support to executive teams by providing analysis and advice in order to make sound decisions regarding the company’s earnings and expenses.
2. Financial Controllers — Financial controllers are responsible for the overall financial management of an organization. They oversee accounting, budgeting, and financial planning processes in order to ensure that the company is meeting its financial goals. They also review and analyze financial reports and data to ensure accuracy, legality, and compliance with established policies and regulations. Financial controllers are often in charge of reviewing internal controls within the organization to ensure their effectiveness.
3. Accounting Managers — Accounting managers are responsible for managing the accounting team and overseeing all financial operations within an organization. They ensure that all relevant financial data and reports are recorded accurately and in accordance with applicable regulations. Accounting managers are responsible for developing and implementing processes to improve efficiency and accuracy of financial transactions, maintaining internal control systems, directing external auditors, and providing support in the preparation of budgets.
4. Budget Analysts — Budget analysts are responsible for analyzing expenses and revenues, tracking expenditures, and evaluating financial data. They use financial analysis to identify potential budget problems and develop plans to address them. Budget analysts may also be tasked with projecting future spending trends, preparing reports on the monthly or yearly budget status, conducting cost-benefit analyses, negotiating contracts, providing expert advice on cost savings initiatives, and advising organization leaders on how to effectively spend funds.
5. Tax Accountants — Tax accountants are responsible for preparing, analyzing, and filing taxes on behalf of individuals, businesses, and organizations. They assess the financial position of their client to identify potential tax liabilities and areas for potential tax savings. Tax accountants analyze financial records and use specialized software to calculate taxes owed or refunds due. They must stay abreast of changes in the tax laws and ensure that all deadlines are met.
6. Auditors — Auditors are responsible for performing financial audits to ensure accuracy and compliance with applicable laws and regulations. They examine the accuracy of financial reports, analyze the effectiveness of internal controls, evaluate data security systems, review accounting practices and procedures, assess the accuracy of payroll records, and verify information reported on financial statements. Auditors must be familiar with state and federal regulatory standards as well as GAAP.
7. Corporate Accountants — Corporate accountants are responsible for managing the financial operations of a business. They compile, analyze, and report on financial data to ensure that taxes are paid correctly and on time, funds are invested wisely, and budgets are properly managed. Corporate accountants also prepare financial statements, monitor cash flow, manage internal audits, and evaluate corporate performance compared to industry benchmarks.
8. Actuaries — Actuaries analyze the financial costs of risk and uncertainty. They use mathematics, statistics, and financial theory to assess the risk that an event will occur and its impact on a business or client. Actuaries evaluate the probability of events such as death, sickness, injury, disability, or loss of property. They also develop creative ways to reduce risk and maximize profits for their clients. Actuaries use their findings to design cost-effective insurance programs and investment strategies that help manage risks.
9. Financial Analysts — Financial analysts analyze the performance of stocks, bonds, mutual funds, and other investments. They use sophisticated software to evaluate trends in the financial markets and evaluate the performance of companies. Financial analysts also assess a company’s financial position by examining its balance sheet, income statement, cash flow statement and other information. Their analysis helps investors make educated decisions about where to invest their money for optimal returns.
10. Treasury Analysts — Treasury analysts are responsible for managing the cash flow of an organization or business. They forecast and analyze short-term and long-term liabilities, monitor cash balances, develop financial budgets, and advise senior management on how best to manage their resources. Treasury analysts also review capital expenditures, oversee banking needs, and maintain relationships with lenders, credit rating agencies, and governmental organizations.

Managerial Accountant Jobs

Many accounting positions at companies require financial and managerial accounting expertise such as the CFO, controller, and treasurer. But there are several roles that rely more heavily on managerial accounting such as:

• Manager/Director of Data Analytics — Professionals in this role need to have a comprehensive understanding of statistics, data science, data extraction, and visualization. They should be able to investigate raw corporate information, including non-financial information, so as to recognize patterns and uncover actionable insights that will inform business decisions. Experience of at least five years is expected for those applying for the position.
• Manager/Director of Strategic Planning — As a chief strategy officer, you will report to either the CFO or CEO and are tasked with creating effective strategies for increasing sales of all products/services offered by your company. Your job entails scrutinizing the external environment in order to evaluate potential growth prospects internally and externally through mergers and acquisitions (M&A). This role requires at least five years’ worth of experience.
• Vice President of Financial Planning & Analysis (FP&A) — As the vice president of FP&A, you will be responsible for spearheading corporate strategies that promote profitability and cost-effectiveness. You’ll also ensure strategic decisions are incorporated into the company’s planning procedures while playing a vital role in assessing business cases to develop new markets, products, and services. This role requires at least 10 years’ experience. Moreover, as VP of FP&A, you will lead a team of financial analysts and managers who will report directly to the CFO.

For more on accounting jobs, check 12 Best Jobs for Accounting Majors.

Conclusion

Financial and managerial accounting are both important parts of the business world, with different roles requiring unique skills. Financial accounting focuses on the company’s financial reports, while managerial accounting focuses on internal decision-making and performance evaluation. Which career path is right for you largely depends on your personality and what interest you. But with the right knowledge and skill set, you can be successful in either field.

For more career and internship resources, check here.