Question

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What is the difference between managerial and financial accounting? 2. What are the three types of business organizations? What does the term limited liability mean? What is a Benefit (B) Corporation? 5. What is the general purpose of financial statements? What are the four types of financial statements? 6. What is the purpose of an income statement? a balance sheet? How do they interrelate? Define the terms "revenue" and "expense" What is net income? What information does it convey? 9. What is the purpose of a statement of changes in equity? 10. Stockholders' equity consists of what two components? Explain how retained earnings and dividends are related. What are the three primary components of the balance sheet? 13. What are assets? 8. 11.

Answer 1

1.

A common question is to explain the differences between financial accounting and managerial accounting, since each one involves a distinctly different career path. In general, financial accounting refers to the aggregation of accounting information into financial statements, while managerial accounting refers to the internal processes used to account for business transactions. There are a number of differences between financial and managerial accounting, which fall into the following categories:

• Aggregation. Financial accounting reports on the results of an entire business. Managerial accounting almost always reports at a more detailed level, such as profits by product, product line, customer, and geographic region.

• Efficiency. Financial accounting reports on the profitability (and therefore the efficiency) of a business, whereas managerial accounting reports on specifically what is causing problems and how to fix them.

• Proven information. Financial accounting requires that records be kept with considerable precision, which is needed to prove that the financial statements are correct. Managerial accounting frequently deals with estimates, rather than proven and verifiable facts.

• Reporting focus. Financial accounting is oriented toward the creation of financial statements, which are distributed both within and outside of a company. Managerial accounting is more concerned with operational reports, which are only distributed within a company.

• Standards. Financial accounting must comply with various accounting standards, whereas managerial accounting does not have to comply with any standards when information is compiled for internal consumption.

• Systems. Financial accounting pays no attention to the overall system that a company has for generating a profit, only its outcome. Conversely, managerial accounting is interested in the location of bottleneck operations, and the various ways to enhance profits by resolving bottleneck issues.

• Time period. Financial accounting is concerned with the financial results that a business has already achieved, so it has a historical orientation. Managerial accounting may address budgets and forecasts, and so can have a future orientation.

• Timing. Financial accounting requires that financial statements be issued following the end of an accounting period. Managerial accounting may issue reports much more frequently, since the information it provides is of most relevance if managers can see it right away.

• Valuation. Financial accounting addresses the proper valuation of assets and liabilities, and so is involved with impairments, revaluations, and so forth. Managerial accounting is not concerned with the value of these items, only their productivity.

2.

Type of Firm Individual Proprietorship Partnership Table 1: Types of Business Organisation Advantages Disadvantages 1. Business is simple to set up. 1. The owner has unlimited liability 2. Decisionmaking is clear-cut 2. The owner makes the decisions. 3. Earnings are taxed only once as personal 3.Business dies with owner. Income. 1. Business is relatively easy to set up. 1. There is unlimited liability for the partners. 2. More management skills are available: 2. Decisionmaking can be complicated. two heads are better than one. 3. Earnings are taxed only once as 3. The company has a limited ability to raise the personal income of the partners. capital 4. Partnerships can be unstable. 1. There is limited liability for owners. 1. Corporate income is taxed twice: once as corporate profits, then as personal Income (dividends). 2. A corporation has a separate legal status. 2. There are greater possibilities for It is able to raise large sums of capital management disagreements. through issuing bonds and stock. 3. It has an eternal life or perpetual existence. 3. There is the possibility of conflicting goals between the owners of the corporation (the principals) and management (the agents). 4. It is able to recruit professional management and to change bad management due to separation of ownership from management Corporation

3.

A limited liability partnership is a partnership in which some or all partners have limited liabilities. It therefore can exhibit elements of partnerships and corporations. In a LLP, each partner is not responsible or liable for another partner's misconduct or negligence.