Question

Write a 750 - 1250 word paper on the following topic: Compare and contrast financial and managerial accounting. Provide one specific, real-life example of how either financial accounting helps external stakeholders make informed decisions or how managerial accounting helps managers to improve operational and financial performance. Your paper must be formatted according to APA 6th edition guidelines, and you need to use at least three external references

Answer 1

Management Accounting is used for the internal purpose of the company. It has a very important role in an organization. It helps the organization to make decisions and obtain expected results by the use of reports and information made with the help of Management Accounting. The managerial accountants prepare budgets; perform management of cost and asset, and important report creation. Management Accounting helps the management to make effective and efficient business strategies.

Management Accounting is very different from Financial Accounting. The management Accounting is used for the internal purpose while the financial accounting is used for the external stakeholders. Management Accounting does not uses the generally accepted Accounting Principles as is used in Financial Accounting. Financial Accounting is a requirement of law while Management Accounting is not. There are set formats and statutory requirements for the preparation of law under Financial Accounting while there is no such norm in Management Accounting. Management Accounting covers specific cost centers and products while the financial accounting covers the whole organization. Under management accounting, reports are future based and help in forecasting whereas under financial accounting, reports are based on historical records and past data.

Summary:   

FINANCIAL ACCOUNTING	MANAGEMENT ACCOUNTING
Reports to those outside the organization owners, lenders, tax authorities and regulators.	Reports to those under the roof of the organization for planning, supervising and inspiring, controlling and performance evaluation.
Attention is on summaries of financial consequences of past activities.	Attention is on decisions affecting the future.
Equality and verifiability of data are prioritized.	Relevance of items relating to decision making is emphasized.
Precision of information is required	Timeliness (Well timed) of information is required
Only summarized data for the entire organization is prepared.	Detailed segment reports about departments, products, customers, and employees are prepared.
Mandatory for external reports.	Not mandatory.

ROLE OF MANAGEMENT ACCOUNTING IN EFFECTIVE AND EFFICIENT UTILISATION OF ORGANISATION’S RESOURCES

The process of management accounting is designed in such a manner so that the efficiency of the organisation increases. An effective management accounting policy helps the organisation to use its resources optimally and also reduction in various costs.

Budgetary Control: A budget is prepared and the costs are incurred in accordance with the budget. This ensures that the company is not spending much amount and also the management is compelled to perform the activities within the set cost limits. Therefore to achieve the desired objectives management is required to ensure there is no wastage of any resources.

Proper Decision Making: With the implementation of management accounting policy, decision making process is simplified. Different level of management is provided with all the information required by them. It helps them to make a detailed analysis of what are the various kinds of resources required at different level of production. They can also have an analysis of past record to determine where there has been an adverse variance of resource utilisation and the reason behind it. Based on it the management would take corrective actions to ensure that such situations are eliminated in future.

Management of Resources: The resources should be allocated to any work based on their capabilities. An in depth analysis of past records and projected activities is required to be performed. Thereafter a resource planner is prepared which contains details of what are the activities required to be performed and what kind of resources will be required to support each activity. In case of personnel we should engage those people who posses adequate skill set and will perform the task in least time and with maximum accuracy. The machines employed should be such which would consume less power and prevent wastage of material. Based on the fixed cost, time availability and usage of time the manager can deploy there resources in an optimum manner. This also ensures that the resources are available at the right time in right place.

Resource Management Reports: Preparation of reports is very much important to determine whether the objectives could be achieved. The management is required to prepare a report on what resources has been deployed on different activities, the time available to perform that activity and the time taken to perform the given activity. Also this report helps in monitoring the wastage generated in the process. This report helps the management to determine their efficiency in resource utilisation and gives management an indication of the corrective actions required by them so that the objective of optimum resource utilisation is achieved.

DIVERSE INFORMATION NEEDS OF MANAGERS AND ROLE OF MANAGEMENT ACCOUNTING INFORMATION SYSTEM IN MEETING THOSE NEEDS

For any decision making management requires information and management accounting information system is entrusted with providing the managers with required information. Since decision are required to be made at all levels of management i.e. operational level, tactic level & strategic level, therefore they all require information. Their requirement of information is based on the type of decision they are required to make. For example : Top level management is required to make decisions on policies, mergers and acquisitions, etc whereas operational level needs to make decisions on the basis of day to day operations of the entity. Therefore the information required by top level management will differ from that required by operational level.

Management accounting information system is management oriented and is designed to fulfil the information needs of the managers. Data is collected from various working level and organized it into useful formats. The system provides an overall view for a given period of time at a single place.

Management accounting system provides various tools and techniques so that information needs at all levels of management is met. It provides in depth analysis of all the data and results of the past. For example there is a constant fall in the sales revenue of the company year on year and the top management is evaluating various alternatives available. After examining various alternatives the top management has decided to implement online sales policy. Now it needs to answer a few questions. How much extra cost is to be incurred by the company? How huge is the online marketplace for the product of the company? What increase in sales can be achieved? Are the increased benefits greater that increased costs? For answering all these questions the management requires information both internal and external. On the other hand operational level in concerned with the daily operations of the organisation. The management needs information on various issues related to these online sales, the reason behind these issues. This will help the management to operate effectively and efficiently.