Question

explain the difference between public accounting and managerial accounting, provide in-text citations. Provide a hypothetical example of income st
atement for public reporting. Provide a hypothetical example of managerial accounting income statement in process costing format. Explain your examples in detail.

Answer 1

Main Difference between Public accounting and Management accounting is as the name suggests, Public accounting is meant to be shared with public, which includes all stakeholders of the company and general public, whereas Management Accounting is meant to be shared only with the managers or board members of the company and this helps the management to take vital decisions on the business growth.

For example:

Income statement for public reporting:

	Description		Total Amt (in $)
	Revenue		10000000
	Less: Expenses
	Variable O/H	6000000
	Rent	40000
	Salary	20000
	Utilities	10000
			6070000
	EBITA (Earnings before Interest, Tax and Amortisation)		3930000
	Less: Amortisation		20000
	EBIT (Earnings before Interest and Tax)		3910000
	Less: Interest		5000
	EBT / PBT (Earnings before Tax / Profit before Tax)		3905000
	Less: Tax @ 35%		1366750
	PAT (Profit after Tax)		2538250

Same income statement when submitted for management purpose, it will look like:

Description	No. of units	Per unit Charges (in $)		Total Amt (in $)	% of revenue
Revenue	100000	100		10000000
Less: Variable OH
Direct Material	100000	30	3000000		30%
Direct Labour	100000	20	2000000		20%
Other Direct Cost	100000	10	1000000		10%
Total Variable OH				6000000
Gross Revenue				4000000	40%
Less: Fixed OH
Rent			40000
Salary			20000
Utilities			10000
Total Fixed OH				70000	1%
EBITA (Earnings before Interest, Tax and Amortisation)				3930000	39%
Less: Amortisation				20000
EBIT (Earnings before Interest and Tax)				3910000	39%
Less: Interest				5000
EBT / PBT (Earnings before Tax / Profit before Tax)				3905000	39%
Less: Tax @ 35%				1366750
PAT (Profit after Tax)				2538250	25%

If you observe above two statements, you could see difference in following items:

1. Variable O/h (Overheads) were presented in details for management purpose: because based on this, management would know where the cost goes higher and accordingly they can plan to minimise the cost or increase the production and finally to increase profit.

2. Each expense item will be presented in % of revenue, in order for the management to know % of expense to revenue and to decide on increase the revenue or to minimise the cost.

3. More importantly, for management purpose, income statement will always be presented compared to previous year figures; so that the management know whether the company is progressing on positive side or finding its growth on decline side as compared to last year.