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Accounting 2.0

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29 views3 pages

Accounting 2.0

bngt

Uploaded by

runwayglam212
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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1.

Difference between Financial and Managerial Accounting:

Financial accounting primarily focuses on preparing financial statements like balance sheets and
income statements for external stakeholders such as investors and creditors. Its objective is to
provide an accurate snapshot of a company's financial health and performance, ensuring
compliance with regulatory standards like GAAP. These reports are crucial for stakeholders to
assess the company's profitability, liquidity, and overall financial stability.

In contrast, managerial accounting serves internal management by providing detailed


financial information and analyses tailored to support decision-making, planning, and control
within the organization. Managers use managerial accounting reports frequently to make
operational decisions, improve efficiency, set budgets, and strategize for future growth.
Managerial accounting reports are flexible in format and timing, allowing for customized
analyses that directly assist in optimizing business operations and achieving strategic goals. Both
branches are essential for effective corporate management, yet they serve distinct purposes in
addressing the needs of external stakeholders versus internal management teams.

2. Types of Documents Prepared by Business Organizations using Financial Accounting:

Balance Sheet: A statement that shows the financial position of a company at a specific point in
time, detailing assets, liabilities, and equity.

Income Statement (Profit and Loss Statement): Summarizes revenues, expenses, gains, and
losses over a specific period, showing net profit or loss.

Cash Flow Statement: Tracks the flow of cash and cash equivalents into and out of the business
during a specific period, categorized into operating, investing, and financing activities.

Statement of Changes in Equity: Details changes in equity accounts like common stock, retained
earnings, and other comprehensive income over a period.
3. Types of Documents Prepared by Business Organizations using Managerial Accounting:

Budgets: Detailed plans outlining expected revenues and expenses for a future period, such as
sales budget, production budget, and cash budget.

Cost Reports: Analytical reports showing the cost breakdown of products, departments, or
activities, helping managers understand cost structures and make pricing decisions.

Variance Analysis Reports: Compares actual financial performance against budgeted or expected
performance, highlighting differences and investigating reasons for deviations.

Performance Reports: Summarizes the performance of departments, products, or projects based


on key performance indicators (KPIs) relevant to managerial goals and objectives.

References:
Garrison, R. H., Noreen, E. W., Brewer, P. C., & McGowan, A. (2019). Managerial Accounting
(17th ed.). Boston, MA: McGraw-Hill Education.

Horngren, C. T., Datar, S. M., Rajan, M. V., & Beaubien, D. (2021). Cost Accounting: A
Managerial Emphasis (17th ed.). Upper Saddle River, NJ: Pearson Education.

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