Discuss the differences and similarities between financial and Managerial accounting?

The fundamental knowledge to help answer the question will be using “Horngren’s Cost Accounting 16th edition” text, to help facilitate the discussion
 
We will first detail what each of them means.

• Financial Accounting - Measures and records business transactions and provides financial statements that are based on generally accepted accounting principles “GAAP”. It focuses on reporting to external parties such as investors and banks.

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• Managerial Accounting – Measures, analyzes, and reports financial and nonfinancial information that helps managers make decisions to fulfill the goals of an organization. It focuses on internal reporting.

 
Therefore, we will break down similarities and differences by the following types. But before going by type, understand the essence of the accounting, respectively, is to provide information. Albeit, management accounting is more efficient than financial, the idea is to provide a clear, accurate, and timely view, to help make investment decisions. Albeit, financial accounting is more prescriptive, management accounting is critical to ensure organizational goals:

• Purpose of Information – Management accounting’s purpose is to help managers make decisions to fulfill organizational goals, in contrast, financial accounting is to help articulate the financial position to outside parties (i.e. investors, banks).

• Primary Users – Management accounting are the managers of the organizations, and financial accounting are the external users.

• Focus and Emphasis – Management accounting is future focused, where financial accounting is “past-oriented”.

• Rules of Measurement of Reporting – Management Accounting is internally policed by the company, where financial accounting must be certified by independent auditors and follow GAAP.

• Time Span and Types of Reports – Management accounting can span multiple years, with both financial and non-financial products. Where financial accounting is annual and quarterly reports, primarily as the entire company view.

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• Behavioral Implications – Management accounting is to design to influence the behavior of managers and employees, where financial accounting reports on the economic events and management compensation (as that can help address influences towards reported financial results).