A Managerial Accounting

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Susan is expected to grasp that the organization has two accounting systems: management accounting and finance accounting. Susan should therefore concentrate on the similarities and differences between managerial and financial accounting for a thorough grasp. Furthermore, Susan must comprehend managerial accounting reports and the significance of company analyses such as horizontal, vertical, and ratio analysis. Susan is meant to mention the following vital characteristics:

Financial and management accounting approaches both present firm health. Regardless of formal distinctions, both methodologies allow users to draw inferences about the health of the business. Financial and managerial accountings are concern about the economic and business events that matters about the performance of the business right from the internal level to the external level.

Financial and managerial accountings draw on the similar set of items. The set of items is similar because the managerial accounting the corporate employee tries to reflect on the company cost of manufacturing and effectiveness. Similarly, the financial accounting focuses on monitoring the income stamen of the company especially in the material costs and expenses involved in corporate administration. The employees in managerial accounting department hold the same knowledge and skills.

The reports prepared in financial and managerial accounting are grounded by the same data that is originally developed to achieve the accounting and reporting requirements of the financial accounting. The accounting system in the organization collects and categorizes information in an approach and format that can be appropriate for both financial and managerial accounting systems.

Differences between financial and managerial accounting

Regarding aggregation, financial accounting reports on the performances or result of the business as a whole. Managerial accounting reports detailed level of the business in a given time. Examples of the reports that are made by the managerial accounting department are profits by product, product line, geographical area and customers. The detailed report made by managerial accounting helps in monitoring production processes and products to earn profits by managing the costs of production.

Efficiency matters in the organization thus the financial accounting reports on the level of profitability of the business, while the managerial accounting reports particularly cause of problems in the business and the best approaches to solve problems and make the business run smoothly.

Information in business is supposed to be proven to earn trust from the accounting reports users. Therefore, financial accounting needs the accounting records to be valid and proven that the figures in the records are correct. On the other hand, managerial accounting takes assumptions thus most of the figures in managerial accounting records are estimates rather that well-proven and facts that are verifiable.

Reports are supports to be produced by the financial accountants and management accountants for certain periods. Financial accounting reports concentrate on the creation of the financial statements to be distributed in within and outside the business for internal and external purposes respectively. Management accounting reports are concerned about the business operation reports that are only distributed within the business for internal purposes only.

Accounting reports are supposed to be prepared based on given standards; therefore, it is essential to understand the standards that are supposed to be met both in financial and managerial accounting. For the financial accounting, standards such as the GAAP and IAS are supposed to be adhered by the business during the preparation of financial statements. Managerial accounting reports are prepared purposely for internal assessment thus they are not supposed to follow any given standards.

About the systems used in business, financial accounting is much concern about the financial results that has already been attained by the business thus it historically oriented. The management accounting can be used in making budgets and projections thus it is a future-oriented form of accounting.

The financial statement needs the financial statements be prepared at the end of the financial period. Management accounting can issue reports more frequently because the information provided by the managerial accountants provide managerial accounting reports because they are beneficial to the business if the managers can check right away.

The valuation of the assets and liabilities are supposed to be addressed by the company only through the financial accounting statements. Financial accounting shows the proper valuation of the business assets and liabilities thus involves the impairment and revaluation. Managerial accounting does not consider the value of assets and liabilities; it focuses on their productivity only.

Examples of the managerial accounting reports that can be used to make decisions.

Budget reports assist the owners in analyzing the business performances, analysis of the departments’ performances and cost control in departments and entire business. In the business, the past year actual reports are used as the basis for creating a new budget for the current year. In a case where the previous year budget for certain department was over budgeted the managers can make a decision to cut the costs as a way of making the future budget close to accurate. The cost for a certain period can be checked in the income statement because, in the income statement, there are production cost and administrative expenses that help the manager to make decisions regarding the business cost and expenses.

Job cost reports show the cost of certain projects done by the business. In the businesses, there are projects implemented to bring efficiency and effectiveness thus increasing company profitability. The company profitability can be analyzed by comparing the past and current financial statements (income statement and statement of financial position). The relationships between the business financial statements accounts assist the managers, creditors, debtors, and investors (owners) to realize how well the business is performing and note the areas where needs some improvement.

Cost analysis report can be developed by evaluating the income statement and the statement of cash flow. Income stamen shows the accrued income and expenses while the cash flow shows the income, costs, and expenses because cash flow is made up of three parts namely; operating activities, investing activities and financing activities. Therefore, statement of cash flow is the most important financial statement needed by the managers and the stakeholders for decision-making reasons. Cash and cash equivalents are important for making a decision because it shows the cash injected and the cash earned by the businesses after carrying out various businesses during a given year.

Important cash flow statement of business in horizontal analysis, vertical analysis, and ratios

The cash flow statement analysis helps the business owners and managers to understand their overall performance internally. The managers can do the horizontal analysis based on the ratios in the business financial statements over a given period. The ratio analysis can be facilitated by the ratios provided after cash flow statement analysis.

The vertical analysis of the business can be analyzed in three classes of main categories of accounts, or the assets and liabilities and equities in the statement of financial position are represented as a part of the total accounts. Therefore, the cash flow analysis can help in analyzing the changes in the business assets and liabilities over a period thus helping the managers and the business owners to make decisions regarding the valuation, acquisition, and disposal of assets and liabilities of the business.

Ratios help business to realize the strengths and weaknesses as far as the cash and cash equivalent are concerned. Cash and cash equivalent are essential in determining the fate of the business because it is always vital for the business to have adequate cash and cash equivalent. Otherwise, the business can be at risk of declining. Therefore, the managers and business owners concentrate on cash and cash equivalents of the business to make both operational and strategic decisions.

To board of directors,

Subject: Information found in Balance sheet, cash flow stamen and Statement of stakeholders’ equity used by managers in planning and controlling

Balance Sheet

The balance sheet is also known as the statement of financial position because it determines the financial strengths and weaknesses of the business. The value of the company can be realized after generating the balance sheet. Investors focus on the balance sheet to have knowledge regarding the financial status of the business. Managers can compare the assets and liabilities because they show what the company owns and what it belongs to the creditors. The company assets are supposed to match. Thus the managers can make analysis to realize if the business is growing or diminishing thus can plan for future growth and control the factors causing business decline respectively.

Cash Flow Statement

Cash flows statement is an essential statement for the business because its analysis helps in realizing the actual cash and cash equivalents of the business. The information found in the cash flow statement is about the cash from the operating activities, cash from the investing activities, cash from financing activities and the disclosure of non-cash activities. The activities help the managers to plan for the cash available in the business and control some of the activities that show some non-economical activities. It is the duty of the managers such as the financial managers, accounting managers and cost accounting managers to design efficient cash management plan and control measures to help the business achieve its short-term and long-term targets.

Statement of Stakeholders’ Equity

Statement of stakeholders’ equity serves as a document provided by the company as part of the stamen of financial position. The statement of stakeholders’ equity shows the changes in the values of the shareholder's ownership or interest in the company from the start to the end of a particular period. Planning regarding the ownership structure of the business can be facilitated by the presentation and evaluation of the Statement of stakeholders’ equity. Selling of stock or shares in the company can be easily done and controlled after analyzing the structure of interest ownership of a business and changes experienced over a given period. Therefore, Statement of stakeholders’ equity is essential to for planning and controlling since its shows the amount of capital attributed to the company shareholders or owners.

May 17, 2023
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