Question

Describe the role of the managerial account. How does it compare with the financial accountant? How might a managerial accountant interact with other functional units such as finance, marketing, and production?

Summarize the contents of each of the primary financial statements. Explain what you believe to be the four most important metrics from those financial statements from the perspective of the management team.

Answer 1

Role of the managerial account

These accountants keep a record of transactions or financial data to be used by the management for decision making in future. Management needs the financial data to base their decisions for various future projects and have to plan their budgets and how to utilize funds to get efficiency in performance.

* Budget development

* Prepare regular reports

* Forecast future trends and opportunities

* Develop Cost control methods

* Create Optimal mix of various strategies

Financial Accountant Vs Managerial Accountant

	Basis	Managerial Accountant	Financial Accountant
1	Scope	Provides information to people within an organisation	Provides information to people outside an organisation
2	Control	Infromation for specific project or work	Infromation for the whole organisation
3	Purpose	To make reports for planning, decision making	To provide reports for various parties
4	Information used	Uses the reports of financial accountant	Uses various transactions of the organisation
5	Statutory requirement	Not required by law	Required by law
6	Objective	To provide information to set and work on goals	To provide end results of business
7	Focus	Focus on Current information	Focus on historical information
8	Format	No specific format is needed	Prepares as per format
9	Information provided	Historical and verified	Goal driven information is used

Managerial accountant's interaction with other functional units

Finance - The managerial accountant interacts with the finance department for future upcoming projects for the amount of funds that would be required by the firm and tries to find out the best and economic way to raise those funds. He analyses the existing business carefully to put forward the future requirements and communicates them to the finance department.

Marketing - After the product planning has been done, there comes the marketing departmeent which ahs to actually sell the product to the customers. Managerial account has to interact with the marketing department for the type pof product that will be produced and makes decisions on the marketing mix that will be used. Marketing department formulates stratgies to sell the product in the market.

Production - Various analysis is done through activity based costing, lifecycle costing etc to produce a product with the best quality and design to offer to customers. Various planning and decision making is done to prduce new products.

Contents of primary financial statement -

* Balance Sheet -

Fixed assets (Tangible such as building, plant and machinery, furniture or intangible such as Goodwill, intellectual property rights etc)

Current assets (which are with business for a short period of time i.e. less than 1 year)

Current liabilities (which are with business for a short period of time i.e. less than 1 year)

Long term liabilites (Loans, Debentures, capital and reserves, etc.)

* Income Statement -

Revenue (These are all the receipts of the business)

Cost of goods sold (It is the cost of goods sold to public and includes various costs for producing the product)

Gross Profit (Revenues-COGS)

Operating expenses (Expenses incurred to keep the business running)

Operating income (Income generated while doing the business)

Interest expense (Expenses for any interest bearing loans)

Taxes (Amount paid to the government)

Net profit (amount left after all deductions)

* Cash flow statement - This includes three activities i.e. Operating(It includes cash flows from and to various activities in running the business), investing(It includes purchases and sale of various investments or long term assets) and financing(Includes sources to raise funds and the costs of raising funds)

* Statement of changes in equity - It includes all transactions related to equity i.e. raising of finance from shareholders or paying dividends or buyback, etc.

Four most important metrics

* Net Profits - It is used by management to know their current year performance and profitability. It helps to know how efficient they were in their tasks.

* Current assets - Current assets shows the short term liquidity of the business i.e. whether the business is able to meet its current needs or not.

* Operating costs - Operating costs is used to do a cost analysis of various projects and they could improve on them by altering their decision accordingly.

* Finance costs - Finance costs are important to know that they can raise funds when necessary and at reasonable costs without incurring huge costs to finance the business.