Chapter P, Problem 1Q

To determine

Managerial accounting and financial accounting:

Managerial accounting is used by internal users for taking an important economic decision in day-to-day affairs of the business. Financial accounting is used by both internal and external users for taking decisions with respect to the organization.

To Identify: Differences in managerial accounting and financial accounting.

Answer to Problem 1Q

Solution:

Managerial accounting is accounting for managers and other internal users for making decisions, plans, and developing strategies for running a business.

Financial accounting is the recording of the financial information and reporting the results in the form of financial statements, i.e., profit and loss account and balance sheet.

Explanation of Solution

• Managerial Accounting: Managerial accounting is accounting for managers and is concerned with the operational information, both quantitative as well as qualitative. The results of managerial accounting are reported in the form of reports, comparatives, charts, analysis, key differences, etc. Managerial accounting provides relevant information to the internal users (owners, managers, and employees) to make plans, policies and strategies for running the business effectively. Managerial accounting does not have to comply with accounting standards.
• Financial Accounting: Financial accounting is the recording of the financial information of a business organization which complies with various accounting standards. The results of financial accounting are reported in the form of financial statements, i.e., profit and loss account and balance sheet. The financial statements are used by owners and external users such as investors, bankers, and creditors.

Conclusion

The managerial accounting is concerned with operations of the organization and is available within the organization in the form of reports to be used by the internal users like owners, managers, employees to take an important decision about the company and its day-to-day affairs. On the other hand, the financial accounting is the recording of financial information of an organization and is used by both internal and external users like investors, bankers, creditors, government departments, and customers.