Difference between administrative and financial accounting

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

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

In this sense, both economic disciplines coexist in the day-to-day life of most commercial organizations or 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 previously explained concept, in terms of management and organization, it is administrative accounting that takes importance.

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

Therefore, 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 performance or their financial health.

It is at this point where the work of administrative accounting takes on special importance.

Methodology and regulations of administrative and financial accounting

There is usually a greater range of methodological freedom when it comes to management accounting. In most cases, the management of a company can be carried out according to very different trends or management modalities.

Alternatively, 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 laws that each country presents, such as accounting principles, for example.

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