Difference Between Accounting and Financial Accounting

Accounting concepts are foremost pillars of a business. In order to ensure efficiency, an organization must adhere to proper internal and external accounting mechanisms which will enable them to make strong business decisions.


  • 1

    When talking about the differences between accounting and financial accounting, one can refer to the former as management accounting. For a company, accounting as a whole is the process of recording, summarizing, analyzing and interpreting financial information. Bookkeepers and accountants are usually responsible for recording day-to-day transaction and preparing various financial statements such as the balance sheet, income statement and cash flow. After that, it is the work of finance managers or large consultancy firm to look into those financial statements and make important decisions based on the information provided.

  • 2

    To put it simply, accounting will be a subset of financial accounting where the latter more or less deals with outside factors. Management accounting or business accounting deals with the internal aspects of the organization, where company sets it own rules and guidelines on how to project, model and evaluate their internal activities with the primary focus on the allocation of assets and liabilities. This information then becomes essential for the outside world such as stakeholders, potential investors and government (for tax-purposes). Therefore, financial accounting does not only cater to external audience but also helps internal management gauge the overall financial health of the company.

  • 3

    Accounting or Business accounting deals at various levels. For small businesses, accounting could simply refer to as bookkeeping where they record their daily expenses and revenues in a chronological manner. A small company will also prepare financial reports as well but in effect, will not be using financial accounting to compare and measure success. This is left for larger companies, which need to compare past or historical data in order to make efficient future decisions.

  • 4

    One important aspect of financial accounting is that it is subject for scrutiny from the outside world. When reports are prepared and analyzed, it is essential that they meet certain accounting requirements as stipulated by GAAP. Moreover, an opinion will be provided by auditors which will enable potential investors to make their own decisions. Management accounting simply deals with specific management guidelines as the information is traded internally.

Leave a Reply

Your email address will not be published. Required fields are marked *

two − 1 =