What are the Differences Between Financial Accounting and Management Accounting?
Whether or not you plan to major in Accounting, every student who plans to work in business after graduation needs to have an understanding of how companies operate financially, especially if you plan to hold a position of leadership in the future.
For example, let’s say you’re in charge of running the marketing department for your company. While you may think marketing has nothing to do with accounting, if you’re in charge of the department, you’ll need to know how to structure your budget based on past spending history and future predictions, as well as have the ability to read financial statements. Understanding accounting will also help you analyze your profits and make informed strategic business plans.
“Regardless of your chosen career, it is critical to have a firm understanding of introductory accounting to do well in any business,” says Kerri-Ann Sanderson, assistant professor of Accounting at Bentley University. “Especially in today’s environment, if you want to be a leader and differentiate yourself from the rest, you must master the business aspects of your organization.”
The two introductory accounting courses found in most business programs are financial accounting and management accounting. While both topics make up the foundational pillars of accounting, there are key differences between the two that you should know.
What is management accounting?
Management accounting, also referred to as managerial accounting, is used by managers and directors to make decisions regarding the daily operations of a company. A distinguishing feature of managerial accounting is that it is not based on past performance, but on current and future trends. For example, determining how much your business should charge for a new product and analyzing how much revenue a future product line is capable of generating are both examples of business problems within the field of managerial accounting. So, too, is deciding when to replace the computers in your offices. Since business leaders constantly need to make operational decisions in a short amount of time, management accounting must rely on predicting markets and future trends.
What is financial accounting?
Financial accounting is used to present the financial health of a company to external stakeholders. This allows the board of directors, stockholders, potential investors, creditors and financial institutions to see how the company has performed during a specific period of time in the past. These reports are filed on an annual basis. If a business is considered a publicly-traded company on the stock market, the reports must be made part of the public record. In a financial accounting course, students learn how to prepare, read and analyze financial statements.
What is the difference between the two?
There are two primary differences between financial and management accounting. The first difference is that management accounting is presented to a company’s internal community, while financial accounting is prepared for an external audience. Even though financial accounting is of great importance to current and potential investors, management accounting is necessary for managers to make current and future financial decisions for their business. The second difference is that financial accounting is exact and must adhere to Generally Accepted Accounting Principles (GAAP), while management accounting can be based off a guess or estimate since most managers do not have time to get exact numbers by the time a decision needs to be made.
An integrated approach to learning
As an undergraduate or graduate business student, you will likely be required to take one course in financial accounting and one course in management accounting before you complete your degree. At Bentley, the general business curriculum for undergraduate students takes a less traditional approach. Instead of completing two separate courses in financial and management accounting, students are required to take two courses that integrate both fields.
“In business, finance and accounting are a very integrated set of concepts, so we present them to students in this way,” explains Sanderson. “At Bentley, we immerse students in the effective implementation of these concepts in business while leveraging the power of data analytics using real-world applications.”
If you decide to declare your major in Accounting or Corporate Finance and Accounting at Bentley, you’ll then go on to take two intermediate courses that dig deeper into the topics of managerial and financial accounting. You’ll also be required to take a course in cost accounting, which provides the next level of detail in managerial accounting. This course will provide you with comprehensive coverage of the principles involved in determining the cost of product or service.
Prepare for your degree with Bentley University
As a graduate of Bentley, you will benefit from the university’s long-standing reputation for excellence in accounting instruction at both the undergraduate and graduate level. In 2021, College Factual, an online portal designed to assist students in selecting a college, acknowledged the high caliber of Bentley’s undergraduate accounting program by ranking it #1 in the nation. Bentley’s Master of Science in Accounting program was ranked #35 by Eduniversal for accounting and auditing graduate programs in North America. Eduniversal bases its rankings on three main criteria: program reputation, the salary of first employment and student satisfaction.
As a result of Bentley’s reputation, the university is repeatedly sought out by the nation’s top accounting firms. “All of the big four accounting firms (Deloitte, PwC, EY and KPMG) have Bentley University on their list of key recruiting schools,” shares Sanderson.
In addition, Bentley’s faculty, Pulsifer Career Development Center and alumni network have extensive connections within these organizations and other accounting firms across the country that you can take advantage of during your degree program.