Accounting is frequently referred to as “the language of business.” For many business owners and managers, however, it’s a language that’s tough to decipher. Yet no matter how well a company does financially, it’ll struggle without the assistance of professionals trained to keep the firm’s finances in order.
The two primary responsibilities of accountants — whether they work as employees or outside consultants — are managerial accounting and financial accounting. Both are crucial to a company’s success, for very different reasons. Students preparing for a career in accounting need to understand the distinct functions of managerial accounting vs. financial accounting, as well as the characteristics that the two share.
What Is Managerial Accounting?
Managerial accountants prepare financial reports for organizations to plan budgets and improve the company’s financial performance. Similar job titles include cost accountant, private accountant, corporate accountant, management accountant and industrial accountant. These positions monitor the company’s financial accounts and provide managers information to support business decisions.
Skills, Degrees and Certificates Associated with Managerial Accounting
While all managerial accountants have backgrounds in accounting principles, financial research and report writing, their duties vary based on the financial and management needs of the organization. Managerial accountants often monitor company investments in conjunction with other managers. They may also participate in risk management, tax planning, preparation of financial statements and supervision of bookkeepers and other office staff.
The U.S. Bureau of Labor Statistics (BLS) states that employers prefer accountant candidates who have a master’s degree in accounting or business administration with a concentration in accounting. For financial managers, a job category that overlaps managerial accountants, top job candidates have a master’s degree in business administration, finance, accounting or economics.
Managerial accountants whose responsibilities include filing reports with the U.S. Securities and Exchange Commission are required to be certified public accountants. For other managerial accounting positions, certification isn’t mandatory but can be helpful for career advancement. The Institute of Management Accountants offers the Certified Management Accountant certification program.
Managerial Accounting Salaries
The BLS reports that the median annual salary of accountants and auditors was $70,500 in 2018; the top 10% earned more than $122,840, and the bottom 10% earned less than $43,650. However, the BLS reports that the median annual salary of financial managers — a job category that overlaps managerial accountants — was $127,990 in 2018; the top 10% earned more than $208,000, and the bottom 10% earned less than $67,620.
Based on self-reported salary data from PayScale, at the time of writing, the average median salary of management accountants is $59,000. The top 10% earn more than $89,000, and the bottom 10% earn less than $40,000.
What Is Financial Accounting?
In the managerial accounting vs. financial accounting decision facing students, one major distinction is the audience for the financial reports each position prepares. While the work done by financial accountants is used internally, financial analysts communicate the company’s finances to the outside world. The financial reports prepared by financial accountants describe the organization’s performance for investors, creditors and government regulators, among other external parties.
Financial accountants supervise tax payments, maintain the company’s financial records and analyze financial data to forecast market trends. They focus primarily on past financial performance, and their reports must meet specific requirements, such as the generally accepted auditing standards, generally accepted accounting principles and International Financial Reporting Standards.
Skills, Degrees and Certificates Associated with Financial Accounting
Financial accountants must have a solid background in accounting and tax principles as well as knowledge of financial regulatory requirements. They must possess general business expertise so they can communicate with managers inside the company and with clients, investors, creditors and regulators outside the company. Also required is a strong technical background, including training in tools such as enterprise resource planning, data analytics and business intelligence software.
According to the BLS, employers prefer financial accounting candidates who have a master’s degree in accounting or business administration with a concentration in accounting. As mentioned above, all financial reports filed with the SEC must be submitted by a CPA, and becoming a CPA can boost a financial accountant’s career by opening professional opportunities and attracting clients. The CFA Institute’s Chartered Financial Analyst certification program entails passing a three-level exam offered to candidates who have a bachelor’s degree and at least four years of work experience. Another helpful certification for financial accountants is the Certified Internal Auditor designation awarded by the Institute of Internal Auditors.
Financial Accounting Salaries
According to the BLS, the median annual salary of accountants and auditors was $70,500 in 2018; the top 10% earned more than $122,840, and the bottom 10% earned less than $43,650. However, the BLS reports that the median annual salary for financial managers was much higher: $127,990; the top 10% earned more than $208,000, and the bottom 10% earned less than $67,620.
Based on self-reported salary data from PayScale, at the time of writing, the median annual salary of financial accountants is $55,000. The top 10% earn more than $76,000, and the bottom 10% earn less than $41,000.
Financial Accounting vs. Managerial Accounting: How They Are Alike, How They Differ
Choosing between financial accounting and managerial accounting requires understanding the skills and job responsibilities that distinguish the two fields. For example, both require individuals to monitor financial records and present their findings based on insights from the data. Both also require a thorough knowledge of accounting principles and management theory, as well as a background in the company’s business lines. The differences are in the financial data that financial accountants and managerial accountants focus on, the form of their presentations and the people to whom they report their findings.
How to Decide Between the Two Accounting Specialties
The financial data of greatest interest to managerial accountants is the company’s internal operations. Examples include identifying underperforming operations and highlighting inefficient business processes. They focus on future events affecting all aspects of the company’s operations, including production, marketing, financial planning and customer relationship management.
By contrast, financial accountants are most interested in the financial consequences of the company’s past actions. Their reports must be objective, accurate and verifiable. The audience for the reports by financial accountants is larger than that for managerial accountants and is primarily external rather than internal: investors, creditors, regulators and tax authorities.
Perhaps the greatest difference between managerial accountants vs. financial accountants is the greater number of restrictions and regulations financial accountants must comply with. Their reports must be submitted at regular intervals, be formatted correctly, and meet all legal and standards requirements. The internal reports managerial accountants prepare for the company’s managers have no formatting limitations, and while the documents must always be as accurate as possible, there’s no financial penalty or other regulatory consequence for errors.
Begin Your Accounting Career Path
Much of a company’s success depends on the work of managerial accountants and financial accountants, who fulfill critical yet distinct roles in their organizations. Financial accountants are charged with ensuring the accuracy of the company’s financial records and its compliance with all regulatory and tax requirements. They report to parties outside the organization to keep them informed of performance and any irregularities.
Managerial accountants are relied upon by business managers to provide accurate, complete and timely financial information regarding the company’s internal operations to support the decisions made by managers about present and future conditions. Their reports are usually less formal and prepared on a more ad hoc basis. Whichever role aspiring accountants prefer, their career success depends on a solid educational foundation such as that offered by the Rider University online Master of Accountancy (MAcc) degree program, which is geared to meet the needs of today’s accounting executives.
Rider’s online MAcc program develops the mathematical and analytical skills that prepare students to pass the exam for CPA certification and earn other professional accounting licenses and credentials. Concentrations include business analytics, forensic accounting and finance, all three of which are supported by a diverse curriculum that covers business analytics, data management, and corporate finance.
Learn more about the advantages of Rider’s MAcc degree program for working professionals looking to supercharge their accounting career.