Question

Explain how managerial accounting differs from financial accounting and discuss two questions that might be answered using managerial accounting reports. Support your rationale with examples and provide one academic resource.

Answer 1

The key differences between financial accounting and managerial accounting are:

• Users: Financial accounting reports are prepared for external users, whereas managerial accounting reports are prepared for internal users.
• Emphasis on the future: Financial accounting analyzes past transactions. Managerial accounting is a strong future oriented.
• Relevance of data: Financial accounting data must be objective and verifiable. Managerial accountants focus on providing relevant data even if the data are not fully objective and verifiable.
• Less emphasis on precision: Financial accounting focuses more on precision when reporting to external parties. Managerial accounting aids decision makers by providing good estimates as early as possible rather than waiting for precise data later.

Managerial accounting reports can answer the following for a bike company:

• Managerial accounting reports prepared for management might include a quarterly budget for revenues and expenses for each segment of the business (e.g., bike sales and bike repairs), returns for defective merchandise as a percent of total monthly sales, income projections and est to be used in deciding whether to open a new store, and projected sales for each bike model.