Question

: Classify whether the decision maker in each of the following cases would use accounting information that falls into the managerial accounting category or financial accounting category. 1. The president of a major corporation requests that every department head submit a budget for the next business year. The budget will include the department’s expected amount of sales and the costs of producing those sales. 2. A recent college graduate was trying to decide if buying Facebook stock would be a good investment. 3. General Motors gathers financial data to determine the cost of making a Chevy Cruze. GM will use that information to determine how much to charge its Chevrolet car dealers for the car. 4. A bank was deciding whether to lend money to a customer who applied for a loan to purchase a new home.

Answer 1

Financial VS Management Accounting:

Financial Accounting:

1) Financial accounting refers to the aggregation of accounting information into financial statements.

2) Financial accounting must comply with various accounting standards

3)Financial accounting reports on the results of an entire business

Managerial Accounting:

Whereas, Managerial accounting refers to the internal processes used to account for business transactions.

Managerial accounting is interested in the location of bottleneck operations, and the various ways to enhance profits by resolving bottleneck issues.

Managerial accounting almost always reports at a more detailed level, such as profits by product, product line, customer, and geographic region.Managerial Accounting deals with estimates unlike financial accounting which deals with proven and verifiable facts.

Classification of the given Cases:

1) The President of a major corporation requests that every department head submit a budget for the next business year. The budget will include the department’s expected amount of sales and the costs of producing those sales.

* It is an Internal process which is used in planning expected cost of producing sales and amount of sales.

Conclusion:Thus the accounting information used by the president will fall into Managerial Accounting category.

2) A recent college graduate was trying to decide if buying Facebook stock would be a good investment

*A decision maker will consider the accounting information such as annual reports of Facebook stock in deciding that it would be a good investment or not.

Conclusion:Thus the accounting information used by a recent college graduate will fall into Financial Accounting category.

3) General Motors gathers financial data to determine the cost of making a Chevy Cruze. GM will use that information to determine how much to charge its Chevrolet car dealers for the car.

*The given case concentrates on decision making regarding charging customers on the basis of cost of making which is purely internal process.

Conclusion:Thus the accounting information used by the General Motors will fall into Managerial Accounting category.

4) A bank was deciding whether to lend money to a customer who applied for a loan to purchase a new home.

*Banker while sanctioning a loan will look into the financial aspects such as the customers capability to repay the loan.

Conclusion:Thus the accounting information used by the Bank will fall into Financial Accounting category.