Question

2. Write 2 paragraphs that differentiates between financial and managerial accounting Use at least one example to illustrate managerial accounting decisions.

Answer 1

financial accounting refers to the aggregation of accounting information into financial statements, while managerial accounting refers to the internal processes used to account for business transactions.

Efficiency. Financial accounting reports on the profitability (and therefore the efficiency) of a business, whereas managerial accounting reports on specifically what is causing problems and how to fix them.

Financial accounting reports on the results of an entire business. Managerial accounting almost always reports at a more detailed level, such as profits by product, product line, customer, and geographic region.

Financial accounting requires that financial statements be issued following the end of an accounting period. Managerial accounting may issue reports much more frequently, since the information it provides is of most relevance if managers can see it right away.

--->> MANAGERIAL ACCOUNTING AND EXAMPLE :--

Managerial accounting is the type of accounting that provides quick information to managers and decision-makers within a company or organization. Managerial accounting, such as weekly or daily budgeting, is used to help managers make decisions that increase the organization's operational effectiveness and efficiency.

EXAMPLE :-- an Internet company rents out servers with Amazon Web Services. Prices to rent out space on Amazon's servers have been increasing month to month. To reduce costs and increase operational efficiencies, the Internet company's managers can use budgets to see if the price increases are costing too much. If the company budgets $100 a week for server space and the actual expenditure for the week is $200, the managers know there is a +100% variance between budgets and actuals, which is not a good sign. This is a case where managerial accounting is signaling the managers to either increase their expectations on prices or move to another provider.