Unit #3 1. Explain the difference between financial and management accounting. Financial accounting is used to meet the needs of external users and management accounting is used to meet the needs of internal users. Financial accounting tends to give external users more dated and historical information supplied in annual financial reports, whereas management accounting provides more current, day-to-day or week-to-week information in order to meet the needs of internal users. This is because internal users, such as manager and employees within a business, desire to predict or anticipate future impacts, such as a budget deficit and account for them, or respond to changes in the environment and control performances. Management accounting, uses …show more content…
In total GAAP has nine principles. Four of which include, the entity principle, the going concern principle, the consistency principle and the matching principle. The main point of the entity principle is to define the entity that is being reported and to not include anything that is not related with the entity. The main point of the going concern principle is to view organizations as though they are to sustain operation into the foreseeable future, and therefore assets are to be treated in a fashion for what is normally expected to happen. The main point of the consistency principle is that once an organization has selected a set of standards for accounting and creating financial reports they will continue to use the same standards. In other words, they will not change standards thereby not allowing financial statements to be compared between different time periods. The matching principle is that all expenses must be recorded in the same accounting period as the revenue that created the …show more content…
Describe the function of each of the four required financial statements The four required financial statements include: The statement of financial position or balance sheet, the statement of operations, the statement of change in net debt and the statement of cash flow. • First, the function of statement of financial position or balance sheet is to provide a report on the resources controlled by an organization and they way in, which they are financed. It provides a snapshot or pinpoint in time on the worth of an organization and the results of the organization 's cash flows. • Second, the function of the statement of operations is to cover the financial transaction of an organization over a period of time (monthly, quarterly, semi-annual, annual). • Third, the function of the statement of net debt describes the changes in an organization 's net assets during the reporting period. In other words, it shows how much an organization has increased or decreased its net assets or net
Management accounting in organisation is very important for decision-making and to make the business more efficient and therefore increasing its profits. Is the process of preparing accounts that can help managers to make day-to-day and short-term decisions, by providing them with accurate and timely key financial and statistical information...
The objective of financial reporting/statements is to provide information about the reporting entity’s financial performance and financial position that is useful to a wide range of users for assessing the stewardship of the entity’s management and for making economic decisions.
The functions of managerial accounting include planning, decision-making, controlling, and evaluation. To make good decisions, managers must constantly adapt to technological changes, changes in the organization's needs, and new approaches to other functional areas of business-- marketing, production, finance, organizational behavior, and corporate strategy. Planning is the setting of goals and developing strategies and tactics to achieve them. Controlling is concerned with achieving the goals and evaluating performance. The success of an organization lies heavily on the shoulders of those making these decisions.
Financial accounting focuses on providing financial statements to stockholders and internal and external users. Financial statements created under managerial accounting provide instructions and data used for internal business management purposes in effort to compute cost of product. Financial accounting provides data for the sole purpose of preparing companies financial statements. Unlike financial accounting, managerial accounting uses past records to forecast future budgets; additionally it doesn’t adhere to any set financial accounting standards such as US GAAP or IFRS (Averkamp). Financial accounting creates financial income statements, balance sheets and cash flow statements under the guidelines of US GAAP or IFRS; however managerial accounting prepares in-depth management products to include cost volume profit analysis, profit planning, operational budgeting, capital budgeting to name a few
Financial and Managerial accounting are used for making sound financial decisions about an organization. They provide information of past quantitative financial activities and are useful in making future economic decisions. (Albrecht, Stice, Stice, & Skousen, 2002) The same financial data is used to derive reports for each accounting process yet they differ in some ways. Financial accounting primarily provides external reports for external users such as stock holders, creditors, regulating authority and others. (Garrison, Noreen, & Brewer, 2010) On the other hand Managerial accounting is concern with providing information that deals with the internal viability of the organization and is tailored to meet the needs of an individual organization. (Albrecht, Stice, Stice, & Skousen, 2002)
When answering what Accounting and Finance is, it is important to consider that accounting can be broken up into two segments; management accounting and financial accounting. Although similarities are present, the purposes differ. Financial Accounting focuses on the businesses past data and follows a reporting guideline. Raun (1962) stated that, Financial accounting systems ‘attempt to provide financial information to persons outside the business management group, such as stockholders, creditors, governmental
Regarding form, management accounting does not provide for any standard format of preparing management accounts.It follows any size as long as the information is well presented to internal users and management of an organization to enhance decision-making. On the other hand financial accounting prescribes a composition for preparing published financial statements and accounts following a standard size as guided by Generally Accepted Accounting Principles (GAAPs) and International Financial Reporting Standards (IFRS).In financial accounting, there are concepts which accountants must adhere to in preparing financial statements.The accountants are guided by uniform concepts and standards of reporting which is not the case in managerial
Managerial accounting which is a synonym for management accounting refers to the provision of accounting information to the managerial accountants of particular organizations which they will in turn utilize in making informed decisions that touch on the business. This allows them to carry out their control and management duties effectively (Gao, 2002). According to Hall (2010), managerial accounting entails a process of identifying, measuring, accumulating, analyzing, preparing, interpreting and communicating information of accounting information by managers with the aim of assuring appropriate use of available resources and accountability.
Financial statements are those statements which provide information about profitability and financial position of a business. It includes two statements, i.e., profit & loss a/c or income statement and bal...
A financial statement or report is a formal record of the financial activities and position of a business, other entity, or person.
The Purpose of Financial Statements The financial statements of a business are used to provide information about the status of the business, set performance targets and impose restrictions on the managers of the firm as well as provide an easier method for financial planning. The financial statements consist of the Profit and Loss Account, Balance Sheet and the Cash Flow Statement. There are four areas of information, which we can collect from a company's financial statements. They are: Ÿ Profitability - This information comes from the Profit and Loss account. Were we can compare this year's profit with the previous years.
Managerial accounting has changed over the years. Managerial accounting focuses on more than the financial aspect. We will be looking at how managerial accounting affects the business world today. Businesses also look to the economy, federal taxes, and the financial market so they can make the best decisions for their business. Management accountants use their skills to help with decisions that help a business make good decisions so their company will be valuable and in an ethical manner.
Cost accounting is a structure of determining the costs of services or products. It has fundamentally created to address the issues of administration. It gives exhaustive information about the cost to various levels of administration for proficient execution of their operations. Finance accounting gives data about profit, loss etc., of the combined activities of the business. It doesn't give the information with respect to expenses by departments, products and processes so on. Financial accounting does not completely consider the losses because of idle time, idle plant capacity, labour inefficiency, poor raw materials, etc. Cost accounting deals with the determination of past, present and future expenses of products produced (Barbee 1993). It gives elaborative cost information to various levels of management for proficient execution of their operations.
According to business, or any organization, Accounting plays a major role in developing and growth of the business. Financial standards of the organization expected as the complexities of business growth and expansion. Hence determining the implementation of the standards can vary according to the type of industry, business or organization.
Accounting as a discipline is more of a law, whereas finance is more of a theoretical practice. Accounting has clearly defined guidelines, rules and regulations. As defined by Wikipedia (2005), "accounting is the measurement, disclosure or provision of assurance about information that helps managers and other decision makers make resource allocation decisions".