How example, is the business living up to the

How
does managerial accounting differ from financial accounting?

Managerial accounting
deals with providing information to parties within an organization, mostly are
managers or decision makers. They produce reports to managers within the entity
that deals with planning, controlling and decision-making.

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Financial
accounting deals with the reporting of financial information to external
parties to an organization such as stockholders and creditors. They would
produce reports that show how an entity has performed in the past.

 

Why
do companies prepare budget?

A budget is an
estimate of revenues, expenses, and resources within a given amount of time. It
contains economic goals, financial conditions, and limits on expenditures of
the organization.

By preparing a
budget, it enables the company to forecast its income and expenditures, reduce
costs, and prepare for the worst-case scenario. It serves as a
tool that provides a financial framework for the decision making process. For
instance, the proposed course action is something that the company has planned
for or not. It also enables the actual business performance to be measured
against the forecast business performance. For example, is the business living
up to the company expectations?

 

Describe
the three major activities of a manager.

Planning

It involves
establishing a basic strategy, selecting a course of action, and specifying how
the action will be implemented. It helps to identify alternatives and select
the best alternative that fits the organization’s strategy.

Directing
and Motivating

It involves how the
management decides to put together the firm’s resources to carry out plans and
run routine operations. For example, management assigned tasks to employees,
arbitrated disputes, answered questions and made small decisions that affect
customers and employees.

Controlling

It involves
ensuring the plan is being implemented and carried out so that the firm’s
objectives are met. In carrying out the control function, managers need to
ensure that the plan is being followed and feedback is the key to effective
control.

 

What
are the major differences between financial and managerial accounting?

Financial
Accounting

Differences

Managerial
Accounting

Concerned
with the summary, analysis, and reporting of financial transactions of a
business.

Definition

Process
of identifying, measuring, interpreting and communicating information to
permit informed judgments and decisions by users of information.

External
persons who make decisions.

Users

Managers
plan for and control an organization.

Reports
on the results of an entire business.

Aggregation

Reports
at a more detailed level. (Example: profits by product, customer, product
line, and geographic region)

Reports
on the profitability and therefore the efficiency of a business.

Efficiency

Reports
on specifically what is causing the problems and how to fix it.

Records
must be kept with considerable precision, which is needed to prove that the
financial statements are correct.

Proven information

Deals
with estimates, rather than proven and verifiable facts.

Oriented
toward the creation of financial statements, which are distributed both
inside and outside of a company.

Reporting focus

Concerned
with operational reports, which are only distributed inside a company.

Must
comply with various accounting standards.

Standards

Do
not have to comply with any standards.

Concerned
with results that have already achieved. It has a historical orientation.

Time focus

Future
orientation.

Financial
statements issued following the end of an accounting period.

Timing

Issue
reports more frequently.

Address the proper valuation of assets and
liabilities.

Valuation

Concerned with productivity only.

 

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