Explain To Her The Similarities And Differences Between Fina

Explain to her the similarities and differences between financial and managerial accounting

You have recently hired a new assistant, Susan Thompson, who previously worked in a financial accounting office preparing journal entries, which provide you with a recording of the day-to-day activities of the company and financial statements (income statement, statement of owners' equity, balance sheet, and cash flow statement). Although your new assistant has experience with and fully understands financial accounting, she has no experience with managerial accounting.

Memo #1 (800 words, excluding title and references)

In a memo to your new assistant, Susan Thompson, complete the following: Explain to her the similarities and differences between financial and managerial accounting. Provide examples of managerial accounting reports that she could expect to see within EEC, and explain how management might use the information to make decisions.

Keep in mind that although the income statement, the statement of owners’ equity, balance sheet, and cash flow statement are generated in financial accounting, they are used to develop all of your managerial accounting reports. Examples of a few of those reports are horizontal analyses, vertical analyses, and ratios.

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Paper For Above instruction

Dear Susan,

Welcome to the team. I understand you come with a solid background in financial accounting, particularly in preparing journal entries and financial statements such as the income statement, balance sheet, statement of owners' equity, and cash flow statement. Your familiarity with these financial reports will serve as a strong foundation as we also delve into managerial accounting, which is crucial for internal decision-making and operational efficiency. This memo aims to clarify the similarities and differences between financial and managerial accounting, introduce typical managerial reports used within our organization, and demonstrate how management utilizes this information to make informed decisions.

Understanding the Similarities and Differences

Both financial and managerial accounting are branches of the accounting discipline and share the common goal of providing useful financial information; however, they serve different purposes and audiences. Financial accounting focuses on providing a clear, accurate portrayal of an organization’s overall financial position and performance to external stakeholders such as investors, creditors, regulators, and the public. This is achieved through standardized reports like the income statement, balance sheet, and cash flow statement, prepared in accordance with generally accepted accounting principles (GAAP) or IFRS.

Managerial accounting, on the other hand, is primarily aimed at internal users—managers and staff within the organization. Its purpose is to provide detailed, timely, and relevant information that assists managers in planning, controlling operations, and making strategic decisions. Unlike financial accounting, managerial accounting does not need to conform to GAAP or IFRS, allowing greater flexibility in reporting formats and frequency.

Key Differences in Content and Focus

One of the fundamental differences lies in the scope of information. Financial accounting takes a broad, historical perspective, focusing on entire financial statements that summarize past activities over a specific period. Its reports answer questions such as "What was the company's net income last quarter?" and "What is the firm’s current financial position?" in quantitative terms.

Conversely, managerial accounting emphasizes detailed, often forward-looking data that supports internal decision-making. It includes budgets, forecasts, variance analyses, cost-volume-profit analyses, and performance reports. For example, managerial reports might analyze the profitability of a specific product line, evaluate departmental costs, or examine production efficiency.

Examples of Managerial Accounting Reports

Within EEC, several managerial reports can be generated to aid management. These include:

• Horizontal Analysis: This examines financial statement data over multiple periods, highlighting growth or decline trends. For example, analyzing sales figures over several quarters to identify seasonal patterns.
• Vertical Analysis: This expresses each item in a financial statement as a percentage of a base figure, such as total sales, facilitating comparisons across periods or departments. For instance, evaluating the cost of goods sold as a percentage of sales.
• Ratios: Financial ratios such as gross profit margin, return on assets, or current ratio, help assess liquidity, profitability, and operational efficiency—important metrics for internal decision-making.

Utilization of Managerial Information in Decision-Making

Management uses these reports to allocate resources, control costs, identify profitable product lines, plan budgets, and set strategic goals. For example, analyzing departmental costs through variance analysis can identify areas where expenses are exceeding budgets, prompting corrective actions. Ratios help management assess operational efficiency, liquidity, and financial health, guiding investment decisions or restructuring efforts. Forecasting and budgeting assist in planning for future growth, while performance reports enable managers to evaluate whether departmental objectives are being met.

Conclusion

In summary, while financial accounting provides a historical and external view of the company's financial health, managerial accounting offers a detailed, internal perspective geared toward operational decision-making. Your expertise in financial statements will be invaluable as we develop these internal reports and analyses, which ultimately help management steer the company toward its strategic goals.

Sincerely,

[Your Name]

References

• Gelb, D. (2014). Managerial Accounting. McGraw-Hill Education.
• Hilton, R. W., & Platt, D. E. (2017). Managerial Accounting: Creating Value in a Dynamic Business Environment. McGraw-Hill Education.
• Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2020). Financial & Managerial Accounting. Wiley.
• Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2018). Managerial Accounting. McGraw-Hill Education.
• Anthony, R. N., & Govindarajan, V. (2014). Management Control Systems. McGraw-Hill.
• Drury, C. (2018). Management and Cost Accounting. Cengage Learning.
• Horngren, C. T., Datar, S. M., & Rajan, M. (2015). Cost Accounting: A Managerial Emphasis. Pearson.
• Rayburn, L. (2014). The Role of Managerial Accounting in Business Decision Making. Journal of Management Accounting Research.
• Kaplan, R. S., & Norton, D. P. (1992). The Balanced Scorecard—Measures that Drive Performance. Harvard Business Review.
• Horngren, C. T., Sundem, G. L., Stratton, W. O., Burgstahler, D., & Schatzberg, J. (2013). Introduction to Management Accounting. Pearson.