Difference Between Management and Financial Accounting

The difference between administrative and financial accounting is the sum of characteristics that distinguish and, therefore, separate both accounting modalities. These characteristics are based, mainly, on the usefulness that these modalities present.

There is an important difference between accounting modalities , such as the one between administrative and financial accounting.

While the administrative or managerial one is characterized by the use of data for management and internal use, the financial one is more associated with the collection and emission of information abroad.

In this sense, both economic disciplines coexist in the day-to-day of most organizations or commercial companies .

In this way, it is possible, at the same time, to point out some other differentiating features between both types of accounting practice.

Objectives of management accounting and financial accounting

Continuing with the concept explained above, in terms of management and organization, it is administrative accounting that takes on importance.

This is due to the need to accurately measure useful data for the day to day of a company. On many occasions, this type of information is of great importance to other competing organizations or to regulatory entities.

For this reason, for the purposes of communication to external parties or to the shareholders themselves, it is necessary to carry out the collection of information regarding their progress or their economic health.

It is at this point where the work of administrative accounting becomes especially important.

Methodology and regulations of administrative and financial accounting

It is usual that there is a greater range of methodological freedom with regard to management accounting. In most cases, the management of a company can be carried out according to very different tendencies or managerial modalities.

Alternatively, the financial information should be expressed based on previously established terminology or formats. This is the case with multiple commercial commitments.

In this line, it is convenient to point out the need to adapt the data to the different regulations or legislation that each country presents, such as accounting principles , for example.

This acquires special relevance in relation to financial reports or economic ratios , which must be expressed in economic models and formats shared by the market.

Other differences according to the nature of each accounting modality

Taking into account the differences explained above, it is possible to take into account some other features that distinguish between these modalities:

• Usefulness of information: While administrative accounting helps to establish strategies and budget consistently, financial accounting is a reflection of the situation of a company at a given time.
• Nature of accounting work: Management accounting reports data to administrators and managers with decision-making power. On the other hand, the finance company addresses all kinds of external parties, including public regulatory entities and other supplier companies .
• Issuance of reports: While the financial one obeys the need to publish the company's results periodically and previously established, the administrative one enjoys greater freedom, as it is defined by the organization itself.