Difference Between Financial Accounting & Management Accounting

by Osmond Vitez

Accounting is often called the language of business. Businesses use accounting to properly record and report their financial information so they can assess their financial situation and make strong business decisions.


Financial accounting is the process of measuring a company’s assets, liabilities and equity. Management accounting is an internal function that allocates materials, labor and overhead costs to products.


While financial accounting must conform to Generally Accepted Accounting Principles (GAAP), management accounting is prepared according to management guidelines, since it only reports information to internal users.

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Financial accounting allows outside users to review a company’s financial health and determine if they want to invest in the company. Management accounting ensures all goods or services produced are accurately priced to recover all production costs.


Companies that fail to implement a strong mix of financial and management accounting may have an imperfect accounting work flow that cannot report the company’s financial information in a timely and accurate manner.

Expert Insight

The Financial Accounting Standards Board (FASB) offers guidance for financial accounting. The Institute of Management Accountants (IMA) is the leading U.S. authority on management accounting.

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