Chapter 1
Introduction to Managerial Accounting
ANSWERS TO QUESTIONS
1. The primary difference between financial and managerial accounting is the intended
user of the information. Financial accounting is used by external parties such as
investors, creditors, and regulators, while managerial accounting is used by internal
business managers.
2. Different users will have different information needs, which give rise to many other
differences between financial and managerial accounting. Financial accounting
includes standardized financial statements that are objective, reliable, and historic in
nature. These reports are prepared on a periodic basis and are reported at a highly
aggregate level, for the company as a whole. Managerial accounting information is
much broader in nature and can encompass budgets, performance evaluations, and
cost accounting reports. The information tends to be more subjective and future-
oriented in nature and must be relevant to the particular decision the manager is
trying to make. The information in these reports tends to be more detailed and
segmented, depending on the manager’s area of responsibility.
3. GAAP-based financial statements, which are prepared for external parties, will not
necessarily be useful for internal managerial decision making. Managers often need
more detailed information than is included in historically oriented financial statements.
They may need the information broken down by division, business segment, or
product line. In addition, managers are typically more interested in what will happen
in the future, as opposed to the past. Even if the information is not as objective and
verifiable as what would be included in a financial report (for example, it may include
more budgeted or forecasted data), managerial accounting information must be
relevant to the particular decision the manager is trying to make.
4. Service companies sell services (non-tangible items) to consumers or other
businesses. Merchandising companies sell finished goods that they have purchased
from someone else. Manufacturing companies make a product using raw materials,
then sell it to another manufacturer, merchandising company, service company, or
individual consumer.
Managerial Accounting, 5/e 1-1
Introduction to Managerial Accounting
ANSWERS TO QUESTIONS
1. The primary difference between financial and managerial accounting is the intended
user of the information. Financial accounting is used by external parties such as
investors, creditors, and regulators, while managerial accounting is used by internal
business managers.
2. Different users will have different information needs, which give rise to many other
differences between financial and managerial accounting. Financial accounting
includes standardized financial statements that are objective, reliable, and historic in
nature. These reports are prepared on a periodic basis and are reported at a highly
aggregate level, for the company as a whole. Managerial accounting information is
much broader in nature and can encompass budgets, performance evaluations, and
cost accounting reports. The information tends to be more subjective and future-
oriented in nature and must be relevant to the particular decision the manager is
trying to make. The information in these reports tends to be more detailed and
segmented, depending on the manager’s area of responsibility.
3. GAAP-based financial statements, which are prepared for external parties, will not
necessarily be useful for internal managerial decision making. Managers often need
more detailed information than is included in historically oriented financial statements.
They may need the information broken down by division, business segment, or
product line. In addition, managers are typically more interested in what will happen
in the future, as opposed to the past. Even if the information is not as objective and
verifiable as what would be included in a financial report (for example, it may include
more budgeted or forecasted data), managerial accounting information must be
relevant to the particular decision the manager is trying to make.
4. Service companies sell services (non-tangible items) to consumers or other
businesses. Merchandising companies sell finished goods that they have purchased
from someone else. Manufacturing companies make a product using raw materials,
then sell it to another manufacturer, merchandising company, service company, or
individual consumer.
Managerial Accounting, 5/e 1-1
