Accounting is an integral part of businesses, as it helps determine the company’s financial health. It allows stakeholders and internal management to make informed decisions based on the data that has been analysed and presented by the accountants.
Management accounting focuses on the company’s internal needs and helps provide data that can be used to facilitate future strategy and growth. On the other hand, financial management follows accounting principles to report the company’s financial performance to external stakeholders.
In this article, we will help to differentiate between management accounting vs financial accounting, how they can work together, and salary differences.
Table of Contents
What is Financial Accounting?
Financial Accounting is a branch of accounting that deals with recording, organizing, and reporting a company’s financial state to external stakeholders. These stakeholders can be investors, regulatory bodies, customers, and creditors. This is the biggest difference between financial accounting and management accounting.
It is important to note that there is a clear difference between finance and accounting. Finance is related to planning and managing transactions, while accounting is focused on reporting these transactions. Finance professionals help to predict growth ratios and use the data to devise financial strategies that contribute to a company’s growth.
A company’s financial report can be issued monthly, quarterly, or annually. This allows the company to communicate its transactions and financial health to all the relevant parties. Company annual reports, including a financial statement, can usually be found on the website, allowing consumers and investors to make informed choices.
Financial Accounts help to create financial statements, which include these parts:
- Income Statement: Financial accounts list the company’s expenses, revenue, and net income in the income statement. This is useful for investors who want to purchase company stock.
- Balance Sheet: This lists the company’s assets, liabilities, and equity. The data presented in the balance sheet helps to determine whether a company will be able to meet its debt obligations and continue to run operations without interference.
- Cash Flow Statement: This statement lists how the company used money during a specific period. It covers capital used for operations, company investments, and loans.
What is Management Accounting?
This is another facet of accounting that deals with financial reporting for a company’s executive management. Management accountants help to prepare budgets and financial forecasting statements that allow company executives to assess risk, operational cost, preventable overheads, etc. This is a major difference when discussing management accounting vs financial accounting.
Management accountants can create budget or inventory reports for specific departments or company-wide reporting. They help to provide necessary and timely information that can help guide operational efficiency and financial decisions that allow an organisation to meet its goals.
Effective management accounting can help companies make informed decisions that will help expand their business and create an economic impact.
Read more on What is Management Accounting.
What is the Difference Between Financial Accounting and Management Accounting?
Financial and management accounting are both fields of accounting, and workers in both require similar educational qualifications. Accountants must also obtain professional accreditation from a recognised body before they are allowed to practice. Both record and analyse financial data before organising them into reports to be presented to stakeholders.
However, the main difference between financial accounting and management accounting is the audience they are reporting to. Financial accounting is meant for external stakeholders, while management accounting focuses on the needs of company managers and leadership.
The table below identifies some key differences between management accounting vs financial accounting.
| Aspect | Financial Accounting | Management Accounting |
| Purpose | Support internal decisions and strategies | Provide financial data to external stakeholders |
| Audience | Company managers, team leads, and executives | Investors, creditors, regulatory authorities |
| Reports | Can be customised | Standardised to meet accounting reports |
| Frequency | As needed | Usually quarterly or annually |
| Detail | Can be focused on a department or operation | Focuses on the overall health of the company |
Learn more about What is Accreditation?
How Does Management and Financial Accounting Work Together?
While it is easy to view them as two separate entities when trying to understand management accounting vs financial accounting, but they are part of the same framework. These accounting systems can be used together to comprehensively understand a company’s financial health.
For example, if the income statement displays a year-on-year loss for a specific department, management accountants can be tasked with creating a cost analysis or a performance measurement report to determine elements that are draining the company.
Further, management accounting recommendations can be taken into consideration for restructuring or productivity improvement that will help the department turn around.
Many companies, including public limited companies, choose to keep their financial departments in-house. In this case, the same team is employed for financial and management accounting functions.
Management Accounting vs Financial Accounting Salary Differences
Both management and financial accountants are integral to any organisation, and their skill sets are required to run a business professionally. They help companies maintain integrity and remain accountable. There is not much salary variation when comparing management accounting vs financial accounting pay.
According to PayScale, as of September 2024, management accountants make an average of R600,000 annually. Entry-level positions start at R420,000, while experienced accountants can take home R720,000 annually.
On the other hand, financial accountants earn an average of R479,958 as of September 2024. Entry-level financial accountants can earn R330,000 annually, while senior accountants can earn R5,762,563 annually.
Management Accounting vs Financial Accounting: Which Path Should You Choose?
While deciding between management accounting vs financial accounting, students should know that they both require the same educational qualifications. Students must study for a South African Institute of Professional Accountants (SAIPA) accredited diploma or degree programme. After completion, they must pass the SAIPA evaluation, which is required to become accountants.
After accountants become members of SAIPA, they must complete a three-year leadership course at a SAIPA-accredited training centre or six years of verifiable work experience before they can become professional accountants.
Management accountants work closely with various teams and upper management to help them make informed decisions that will impact the company’s future.
On the other hand, financial accountants use past data to create reports for external stakeholders. They need to have a deep understanding of accounting principles and regulations, but they are not deeply involved with the internal company decision-making process.
Ultimately, accountants need to decide which path to follow based on their interests and the career path that they have designed for themselves. Those who prefer being involved in daily operations and strategic planning might prefer management accounting. And those who prefer making financial statements and complying with accounting regulations might favour financial accounting.
Gain insights on How to Choose a Career That is Right For You
Conclusion
Accounting is an integral part of conducting business, and sound accounting practices are needed to gauge a company’s success. Management accounting focuses on the organisation’s internal needs, while financial accounting creates reports for external stakeholders.
While there are many differences when discussing management accounting vs financial accounting, both these roles work within the accounting framework. They must accurately record, organise, and report financial information for the benefit of their intended audience.
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Management Accounting vs Financial Accounting – FAQs
What is the difference between finance and accounting?
Finance is focused on managing money and assets, while accounting involves recording and reporting financial transactions.
What role do management accountants play in a company?
Management accountants prepare budgets, forecasts, and performance reports that help executives assess risks and operational costs, ultimately guiding financial decision-making.
What is the variation for financial accountant vs management accountant salary?
As of September 2024, management accountants earn an average of R600,000 annually, while financial accountants earn around R479,958 annually.
What are management accounts vs financial accounts?
Management accounts are internal reports created for the company’s management. Financial accounts are elements, such as assets and direct investments, that are needed to create financial statements for external stakeholders.
What accounting path should I choose between management accounting vs financial accounting?
Those who prefer strategic planning and operational involvement should choose management accounting. Those who prefer reporting to external stakeholders might be more suited to financial accounting.
What types of reports do financial accountants create?
Financial accountants prepare standardised reports, including income statements, balance sheets, and cash flow statements.
