Intro : Managerial Accounting (MA) Vs Financial Accounting (FA)

Question 1

What is accounting ?

Answer 1

Identifies, records and summarises economic information via financial statements
- reporting it to decision makers ( eg: managers, owners, investors, general public)

Question 2

What is the function of accounting ?

Answer 2

1. Transforms & aggregates economic events into reports that give an overview of these transactions
2. Analyses, records, summarises financial statements
3. Communicates it to information users

Question 3

What is function of accounting (II) ?

Answer 3

4. Shows where and when company spends money and makes commitments
5. Helps predict future effects of decisions
6. Helps direct attention to inefficiencies & opportunities
   Accounting is the language of business

Question 4

MA vs FA: what are the distinctions of the primary users of FA and MA?

Answer 4

FA: provides information for external decision makers
- Eg: creditors, government agencies, suppliers, investors, customers
MA: provides information for internal decision makers
- Eg: managers at all levels

Question 5

MA vs FA: what is the distinction between the time dimension of FA and MA?

Answer 5

FA:
1. Backward looking
2. Analyses and records the economic performance of the past?
MA:
1. Focuses on the future
2. Enables managers to plan ahead
3. Budget

Question 6

FA vs MA: what is the distinction in the frequency of FA & MA?

Answer 6

FA: aggregates transactions and presents a big picture - annually or quarterly
MA: costs and revenues are reported in shorter time intervals ( months, weeks, days)

Question 7

FA vs MA: what is the distinction between the rules/regulations of FA & MA

Answer 7

FA
1. Required to follow Generally Accepted Accounting Principles ( GAAP)
2. Guarantees reliable and comparable information
3. Public companies audited by an independent CPA
MA
1. System that meets the specific needs of mangers
2. Follows best practices and standard for good management accounting systems
3. NOT required to follow GAAP