I received a question from my tutor regarding our last discussion. Here’s the question:
Is it possible that the bank may also require managerial accounting reports that focus on specific products or segments depending on the type of loan?
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Managerial Accounting vs. Financial Accounting
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Managerial Accounting vs. Financial Accounting
Managerial accounting and financial accounting are two distinct disciplines within the
accounting field that fulfill various organizational functions. Management accounting is the
process of examining, understanding, and utilizing reports in analyzing financial data to aid in
strategic planning and business growth. Managers at various organizational levels work together
to create budgets, projections, and timetables before presenting them to senior leaders for review
(Dock Treece, 2021). The purpose of such information is to facilitate the making of informed
decisions and effectively manage the company’s day-to-day operations. In contrast, financial
accounting deals with keeping records of transactions for businesses and other economic units
per generally accepted accounting principles (GAAP) and preparing various statements from
those records regularly (Warren & Tayler, 2018).
In scenario 1, managerial accounting is utilized in that the production manager uses
internal reports to determine how to boost gross profit while analyzing costs. The production
manager’s reports, unique to the company’s operations and not always prepared under GAAP,
contain comprehensive information on costs incurred in the prior year. The reports are
customized to meet the individual decision-making requirements of management and are not
always generated at predetermined time intervals. The reports offer impartial data regarding the
company’s financial performance and concentrate on the entirety of the business. Setting clear
goals, carrying out strategies, and comparing ongoing achievements to the goals are all part of
budgeting (Warren & Tayler, 2018). Managerial accounting also includes cost analysis and
budget creation using assumptions and projections. These steps support the management team’s
decision-making for cost-cutting and boosting gross profit. The budget is a tool used internally to
plan and manage upcoming operations.
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In scenario 2, the quarterly reports that the investor is pulling are prepared using financial
accounting. Financial accounting is concerned with supplying data to external consumers,
including creditors and investors (Warren & Tayler, 2018). The information is accurate and
unbiased since GAAP, a set of accounting principles, creates the reports. These reports are
helpful for investors and other outside parties to determine the company’s financial viability and
make investment decisions due to their objectivity and standardization.
In scenario 3, Deacon Corporation would use financial accounting to generate bank
reports to access the loan. Financial accounting reports are generated following GAAP
(Generally Accepted Accounting Principles) and are concerned with presenting information to
external users, such as creditors. Financial accounting constitutes monitoring financial
transactions and generating statements that encapsulate a company’s financial performance and
condition (Dock Treece, 2021). The bank requires financial information to assess if the company
can afford loan principal and interest payments. Financial statements serve as a basis for
determining a company’s creditworthiness. Accurate financial accounting maintains industry
standards, adhering to transparency and regulatory compliance.
In scenario 4, managerial and financial accounting can be used to prepare tax statements.
According to Warren & Tayler (2018), financial accounting is focused on giving information to
external users, such as tax agents, and GAAP principles are used to prepare financial statements.
In this case, the agent makes sure that the tax return for a specific item uses the same accounting
principles as those used in the financial statements. The financial statements thoroughly assess
the company’s financial situation and performance and serve as the foundation for tax reporting.
Management accounting uses financial information from the organization to help the leadership
make strategic decisions. Thus, management accountants tasked with reporting and disclosure
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should accept responsibility for sustainability, critical in establishing more sustainable internal
processes that translate into strategic action within their enterprises (Thomson, 2021). Therefore,
management accounting can be utilized in this scenario.
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References
Dock Treece, D. (2021). Guide to Management Accounting – businessnewsdaily.com. Business
News Daily. https://www.businessnewsdaily.com/16202-management-accounting.html
Thomson, J. (2021, December 20). 2022 Will Be The ‘Year Of The Management Accountant.’
Forbes. https://www.forbes.com/sites/jeffthomson/2021/12/20/2022-will-be-the-year-ofthe-management-accountant/?sh=465ff7232e2d
Warren, C. S., & Tayler, W. B. (2018). Managerial accounting. Cengage Learning.
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