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Chapter 1: Question 4CA (page 24)

CA 1-4 (Financial Accounting) Omar Morena has recently completed his first year of studying accounting. His instructor for next semester has indicated that the primary focus will be the area of financial accounting.

Instructions

  1. Differentiate between financial accounting and managerial accounting.
  2. One part of financial accounting involves the preparation of financial statements. What are the financial statements most frequently provided?
  3. What is the difference between financial statements and financial reporting?

Short Answer

Expert verified

Financial accounting refers to the preparation of reports for general purposes, whereas managerial accounting provides information to the inside of an organization.

The financial statements that are most frequently provided include the balance sheet, the income statement, the cash flow statement, and the statement of shareholder鈥檚 equity or owner鈥檚 equity.

Financial statements like balance sheets or cash flow statements consist of information relating to a certain subject. On the other hand, a financial report consists of information on various other related topics.

Step by step solution

01

Meaning of Financial statement

A reported statement that provides useful information of the business to its directors, stakeholders, potential investors, and creditors is referred to as a financial statement.

02

Difference between financial accounting and managerial accounting.

Financial accounting may be defined as the art of recording, classifying, and summarizing in a significant manner in terms of money transactions and events, which are in part at least of a financial character and interpreting the results thereof. On the other hand, managerial accounting is the process of identification, measurement, accumulation, analysis, preparation, interpretation, and accumulation of financial information to plan, evaluate, and control within an organization and to assure appropriate use of and accountability for its resources.

Financial accounting provides information regarding the status of the business and the results of its operations to management as well as to its external parties. Whereas managerial accounting assists management in informing policies and planning and controlling the business enterprise's operations.

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Most popular questions from this chapter

Economic consequences of accounting standard-setting means:

(a) standard-setters must give first priority to ensuring that companies do not suffer any adverse effect as a result of a new standard.

(b) standard-setters must ensure that no new costs are incurred when a new standard is issued.

(c) the objective of financial reporting should be politically motivated to ensure acceptance by the general public.

(d) accounting standards can have detrimental impacts on the wealth levels of the providers of financial information.

Question: What is the benefit of a single set of high-quality accounting standards?

How are FASB preliminary views and FASB exposure drafts related to FASB 鈥渟tatements鈥�?

What is the likely limitation of 鈥済eneral-purpose financial statements鈥�?

(Objective of Financial Reporting) Karen Sepan, a recent graduate of the local state university, is presently employed by a large manufacturing company. She has been asked by Jose Martinez, controller, to prepare the company鈥檚 response to a current Preliminary Views published by the Financial Accounting Standards Board (FASB). Sepan knows that the FASB has a conceptual framework, and she believes that these concept statements could be used to support the company鈥檚 response to the Preliminary Views. She has prepared a rough draft of the response citing the objective of financial reporting.Instructions

  1. Identify the objective of financial reporting.
  2. Describe the level of sophistication expected of the users of financial information by the objective of financial reporting.
See all solutions

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