Management & Financial Accounting

Question 1

Management Accounting

Answer 1

Processes economic information that management should consider when making business decisions.

Not required by law, only when the business requires it.

Question 2

Financial Accounting

Answer 2

Involves the preparation of financial statements, and the users and uses of these, whilst providing general information addressing the common needs of its users.

Required by law, every month, quarter, or year.

Question 3

Cost Accounting

Answer 3

A set of techniques whereby transactions are recorded, and costs are ascertained, classified, and allocated to products within the business. These costs can then be disclosed and compared against revenue to measure profitability in detail.

Question 4

What is the purpose of Management Accounting, and who is it used by?

Answer 4

It helps organisations make decisions, and improve ability to control costs and plan for the future.

It is considered INTERNAL Accounting because it is only used by management.

Question 5

What is the purpose of Financial Accounting, and who is it used by?

Answer 5

It provides enough financial information so that others external from the business can assess the company’s value e.g. Governments officials etc.

It is considered EXTERNAL Accounting because it’s used by people outside the firm.

Question 6

Costing

Answer 6

Costing is cost accumulation for stock valuation purposes.

Question 7

Explain 2 methods of Costing

Answer 7

Marginal Costing - concerned with cost behaviour I.e. The separation of costs into fixed and variable.

Absorption Costing - concerned with cost classification I.e. The identification of either direct or indirect costs.

Question 8

Define Cost Behaviour, and why is it important?

Answer 8

The way in which costs per unit of output are affected by fluctuations in levels of activity e.g. Fixed and variable costs.

Helps with decision-making, cost control, and budgeting.

Question 9

Fixed Costs

Answer 9

Costs which are unaffected by fluctuations in level of output e.g. Rent, insurance.

Question 10

Variable Costs

Answer 10

Costs which are affected by fluctuations in level of output e.g. Raw materials, labour.

Question 11

Semi-Variable Costs

Answer 11

Have both fixed and variable elements e.g. A gas bill is made of a standing charge (fixed cost) and a usage charge (variable cost).

Question 12

What is the role of a management accountant?

Answer 12

To serve the management by providing information for decision-making purposes.

Sometimes described as ‘the gatekeeper of management information’ so far as the relevant information should be fed to management, and only problematic areas should be reported.

Question 13

What is the function of a management accountant?

Answer 13

1. Cost allocation for profit reporting.
2. Provision of relevant information for decision-making.
3. Provision of information, for planning, control, and performance measures.

Question 14

What are the benefits of having a management accountant?

Answer 14

Reduce Expenses
Improve Cash Flow
Help Make Business Decisions
Increase Financial Returns

Question 15

6 Key Points about Management Accounting?

Answer 15

1. The keeping of management accounts is not required by law.
2. The format of the accounts is at the owners own discretion.
3. Focus upon the performance of specific products in terms of cost and profitability.
4. Management accounts incorporate non-monetary measures.
5. Accounts are both a historic record and planning device for the future.
6. INTERNAL ACCOUNTING.

Question 16

6 Key Points about Financial Accounting?

Answer 16

1. Financial accounts must be prepared by law.
2. The format of the accounts is determined by law + financial reporting standards.
3. Accounts concentrate on business as a whole, grouping revenues/costs.
4. Most financial accounting is of monetary nature.
5. Financial accounts are a historic record when published.
6. EXTERNAL ACCOUNTING