1. Differentiate broadly between financial accounting and managerial accounting.
Financial accounting is the process of recording, summarizing and reporting business transactions over a period of time in order to prepare company financial reports for use by both internal and external parties such as investors and creditors. On the other hand, managerial accounting is the process of identifying, measuring, analyzing, and communicating financial information needed by management in order to plan, control, and evaluate a company’s operations.
2. Differentiate between “financial statements” and “financial reporting.”
Financial statements are the principal means through which a company communicates its financial information to those outside it. They
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These documents are reported usually for authoritative pronouncement, regulatory rule, or custom.
3. How does accounting help the capital allocation process?
Accounting provides relevant and reliable financial information of a company, which in turn can help investors and creditors with the capital allocation process and attract investment capital.
4. What is the objective of financial reporting?
The objective of financial reporting is to provide financial information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors in decisions about providing resources to the entity.
5. Briefly explain the meaning of decision-usefulness in the context of financial reporting.
Financial reporting provides financial information that is useful for investors in making decisions in terms of assessing the company’s ability to generate net cash inflows and management’s ability to protect and enhance the capital providers’ investments, which is also known as decision-usefulness.
6. Of what value is a common set of standards in financial accounting and
Managerial accounting provides essential data about the functions within the business. The reports that are provided by the managerial accountants focus on the performance of the business and the business environment. Managerial accounting is manager oriented and managerial accounting focus on the accounting duties of a manager. Managerial accounting is used on a day to day operation providing an analysis of cost and the cost benefits. Managerial accounting function as a source for the business developments and the capital budgeting. The primary concern with managerial accounting is to provide positive outcomes in the business production and the profit.
A financial statements are documents prepared communicating with a business financial activities. Financial statements are a key component of accounting. Financial statements are presented in a structured manner with conventions accepted by accounting and regulatory personnel. There are four different financial statements which includes the balance statement, income statement, retained statement, and the statement of cash flow.
Quality of reported financial information is a critical element in evaluating financial statement data. The higher the quality of financial reporting, the more useful the information is for business decision making.
Financial accounting is an information-processing system that generates general-purpose reports of financial operations (income statement and statement of cash flows) and financial position (balance sheet) for an organization. It is used by decision makers inside and outside the firm, such as security investors, analysts, and lenders. Adding to this external orientation are external financial reporting requirements determined by law and generally accepted accounting principles.
The information found in financial statements outlines the financial activities of that company, and can help managers, creditors, and investors make many important decisions.
Financial accounting statements can help a user to make future decisions by showing the concerned business’s health. It shows where money is being generated, spent and lost, depicting the financial performance and financial position. The statements can also help in situations such as raising fresh capital in the form of a loan, e.g. a bank will most likely require these statements to show the business’s credibility or worthiness. The statements help influence managerial decisions on which direction the business needs to head, and how to best maximize profit.
The main purpose of financial accounting is to prepare financial reports that provide information about a firm’s performance to external parties such as investors, creditors, and tax authorities. Must be performed according to GAAP (Generally Accepted Accounting Principles) guidelines.
Financial statements of the company are significant for the investors who would like to venture into the business operation. It gives them the insight whether the business is making profits or it is doomed to fail;
Financial statement measures the financial performance, liquidity and strength of the firm, it is important
Financial statements are a very useful tool for individuals interested in the organization. Investors use the information to determine if it a wise decision to put their money into the organization. Investors need to determine if the organization has been successful and profitable and will continue to be successful and profitable. Creditors use the financial statements to determine the amount of credit that should be advanced to the organization. Employees generally do not look at the financial statements, but if a new executive was thinking of joining the organization, he or she may want to see the potential of the organization to make sure the investors are becoming a part of a successful organization. Management uses the financial statements on a monthly basis to determine which areas of the organization are profitable and which areas of the organization that needs to be discontinued or restructure to become more profitable.
Management accounting also help the organisation to evaluate the internal financial situation of the organisation in regards of regulatory authorities, investors and shareholders. In order words, management accounting is interlinked with organisational operations on different levels that help the companies to operate in the national and international market (Kaplan & Atkinson,
The primary difference between financial and managerial accounting is that financial accounting is used for external members of the company; they do not control or run the businesses’ operations. An example of external members would be customers and shareholders of the business. On the other hand, managerial accounting is used for internal members in the company such as managers and officers. The internal members use managerial accounting to increase efficiency and effectiveness within their company. According to accounting4management.com, financial accounting and managerial accounting have several differences, but they both depend on the same data.
Management accounting is used to provide managers with information, so they can make informed business decisions. The next category is open-book accounting; this is defined as an accounting principle that aims to improve accounting in organizations. Tax-accounting is defined as the accounting needed to comply with jurisdictional tax regulations. In other words, tax-accounting is used to put tax on goods and services. Accounting has revolved into what every company uses today which is the equation of; Assets=Liabilties+Owners Equity. The meaning of this equation is to show companies what they own and what they owe to there creditors and everybody else.
The Purpose of Financial Statements The financial statements of a business are used to provide information about the status of the business, set performance targets and impose restrictions on the managers of the firm as well as provide an easier method for financial planning. The financial statements consist of the Profit and Loss Account, Balance Sheet and the Cash Flow Statement. There are four areas of information, which we can collect from a company's financial statements. They are: Ÿ
A financial statement (or financial report) is a formal record of the financial activities of a business, person, or other entity. In British English including United Kingdom company law a financial statement is often referred to as an account, although the term financial statement is also used, particularly by accountants.