Difference Between Financial Accounting and

In today’s article you will be able to discover and understand the difference between financial accounting and administrative accounting.

Despite the fact that financial and administrative accounting are born from an information system, which has the purpose of helping us make the best decisions for its different users, there is a difference between financial and administrative accounting.

I invite you to discover their differences.

Difference Between Financial and Management Accounting

▷ Internal or external users?

In the book “Administrative accounting”, written by David Noel Ramírez Padilla, he mentions that administrative accounting allows us to genera information for internal use for the administration of an organization.

For example:

Formulates, improves and evaluates policies for the company.
Know the areas of the company that are efficient and those that are not through, for example, the value chain.
Plans and controls the daily operations of the organization.
Know the costs of different products or processes, to achieve cost leadership in your campo, etcétera.

Therefore, management accounting produces information that perro be used for the use of internal users, while financial accounting produces information that perro be used by external users.

However, it is not exclusive.

We perro mezcle both to make decisions.

Thus, the basic difference lies in the way in which the information is presented to the outside, or to the inside of the organization.

For example, management accounting does not require a specific model or format (estándares), as is the case in financial accounting.

▷ Focus on the past or the future?

Management accounting is focused on the future, unlike financial accounting, which generates information about the past or historical events of the organization.

Management accounting is oriented toward the future, because one of the essential functions of the executive is planning.

In short, it seeks to establish the best routes of action and strategies that allow us to achieve a competitive advantage.

▷ Regulated or not by estándares

Depending on the company, a manager or administrator will need different information that allows them to achieve results for the company.

An example is the evaluation of the opportunity costs of accepting or not special requests, of accepting more or less business risk, etcétera.

Therefore, management accounting is adjusted or adapted based on the specific needs of an organization.

On the other hand, financial accounting has to be regulated by financial reporting estándares (managerial accounting does not).

This is because the information is generated for external users (external purposes) and thus an external usuario perro be sure that the financial statements have uniformity in their presentation, and therefore, cánido be compared with other financial statements.

In conclusion, financial accounting is governed by rules that allow standardizing its documents so that they perro be understood and used by external users, while administrative accounting does not use estándares in its preparation.

▷ Is it mandatory to use administrative or financial accounting?

First of all, financial accounting is mandatory, which is not the case with management accounting, which is an optional information system.

In short, a company has to carry out financial accounting compulsorily.

Do you know of any incorporated company that does not use financial statements?

▷ Utility accuracy

According to David Noel, management accounting does not attempt to determine profit with the precision of financial accounting.

It grants more relevance to the qualitative data and costs necessary in the analysis of the decisions that, in many cases, are approximations or estimates that are made to predict the future of the company.

On the other hand, financial accounting does seek to determine with the greatest accuracy the utility of the company.

▷ General or specific view

Financial and administrative accounting see the company from different points of view and from that point of view or approach they make decisions.

Administrative accounting seeks to see the company from each gear that makes up the organization, that is, from each cell that makes it up (divisions, product lines, activities, etcétera.).

Taking into account each cell of the organization allows a process of continuous improvement, through an analysis of the activities and processes that are carried out in the different areas to increase competitiveness.

Meanwhile, financial accounting focuses on the entire company, that is, it has a global view, since it has the task of reporting on the events that occur in it.

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