Outline the differences between financial reporting and managerial accounting information , accounting homework help

timer Asked: Jun 24th, 2017
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Question Description

"My small business now makes a profit; I am only too aware of this, as I now face a big tax bill each year, when my tax accountant has prepared my annual accounts. However, I don't feel much better off personally, so this is not quite what I had expected when I took the risk of resigning my job and setting up my own firm. The accountant is now trying to persuade me to pay her even higher fees, by letting her prepare monthly 'management accounts' for me. She says that I would also benefit from something called CVP analysis on my various product lines. I know that you are now doing an MBA. What does she mean here, and is this likely to be worth my paying her for?"

  • Outline the differences between financial reporting and managerial accounting information and explain the benefits and potential problems associated with cost–volume–profit (CVP) analysis.
  • How might the technique that you have discussed assist your friend in the effective management of his business' resources?
  • What advice would you give your friend?

Tutor Answer

School: Carnegie Mellon University

Here is the answer. Thanks

Financial accounting and management accounting are two distinctive branches of
accounting. Besides financial accounting which ensures financial reporting, management
accounting which provides internal business information is implemented to smoothly run the
operation of the company (Garrison, Noreen, & Brewer, 2015).
Management Accounting Information, and Cost Volume Profit (CVP) Analysis
Distinction in Between Financial Accounting and Management Accounting
Managerial accounting information is the internal business information that support in the
internal decision making of the organization (CIMA, 2017). Financial reporting information is the
financial position and performance information (Garrison, Noreen, & Brewer, 2015). The
distinction in between financial reporting information, and management reporting information are
pointed out below.
o Financial reporting information is historical information (historical financial transactions),
whereas management accounting information is forward looking information (budgets and
forecasts) (Langfield-Smith & Thorne, 2012).
o Financial reporting information serves the needs and interests of the external
stakeholders including tax authority, regulators, stockholders, lenders etc., whereas
management accounting infor...

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