Question

Differentiate managerial accounting from financial accounting using the following criteria: a) Primary users of reports

2. Type and frequency of reports
3. Purpose of reports
4. Contents of reports
5. Verification Process

Give concrete examples for each difference.

Answer 1

Following are the differences between managerial accounting and financial accounting :-

a. Primary users of report

Financial accounting report are primarily used by creditors, investors and market analyst

Whereas, managerial accounting report is used by directors , promotors.

b. Type and frequency of report

Financial accounting are of two types -

Cash basis

Accrual basis

Managerial accounting are of seven types-

Product Costing and Valuation.

Cash Flow analysis

Inventory Turnover Analysis.

Constraint Analysis.

Financial Leverage Metrics.

Accounts Receivable (AR) Management.

Budgeting, Trend Analysis, and Forecasting.

b. Purpose of report;-

Financial accounting is used to track, analyze and report your business' income. The purpose of these reports is to examine resource usage, cash flow, business performance and the financial health of the business. This helps you and your investors make informed decisions about how to manage the business.

Managerial accounting used is to supply financial and nonfinancial information to the organization's management and other internal decision makers. Most of the job responsibilities of a manager fit into one of three categories: planning, controlling, and evaluating.

c. Content of report

Financial reporting includes the following:

External financial statements (income statement, statement of comprehensive income, balance sheet, statement of cash flows, and statement of stockholders' equity) The notes to the financial statements.

Managerial accounting report

These reports compile financial information from accounting records and can include data like transactions, operational costs, product profitability, and regional sales. These reports are made so that managers can make informed business decisions.

d. Varification process

Verifying financial statements is possible in several ways. Request audited financial statements signed by a certified public accountant. Further investigation of the financial statements is still necessary, but starting with audited statements offers initial verification. Ask for bank statements to verify deposits.

Managerial accounting are varified by comparing closing balance of financial year to opening balance of financial year