Question

1. Explain what financial accounting is and give example
2. Explain what management accounting is and give example

Write not less than 350 words

Answer 1

Financial accounting is the area of accounting that focuses on providing external users with useful information. In other words, financial accounting is a way of reporting business activity and financial information to investors, creditors, and other people outside the business organization.

Example

These financial statements, along with financial accounting standards in general, must be held to strict rules, so the financial statements will be useful and of high quality. That is why GAAP governs the principles and standards of financial accounting. GAAP requires that accounting information be relevant, reliable, and consistent among other things. This insures that external users will be able to have quality information to base their financial decisions on.

Define Management Accounting: Management accounting means analyzing and recording business activities for internal company use in an effect to increase efficiency and productivity.

Anderson is the CEO of a small consulting firm. He wants to hire a management accountant and a financial accountant. He has come up with a list of job tasks and he needs to break them up into those that should be performed by the managerial accountant and those that should be performed by the financial accountant. Here is the list of tasks that Anderson has come up with:

1. Preparing cash flow statements
2. Income statement reporting
3. Budgeting
4. Calculating changes in stockholder equity
5. Preparing taxes for the organization
6. In this example, the only tasks that would be assigned to the management accountant are budgeting and taxes. The financial accountant would handle the other tasks.