Types of accounting wk 1

 Discuss the differences between financial and managerial accounting

Financial accounting is a process where the company prepares the representations of financial statements to the external users (Hermanson et al. 2011). The latter needs these formal reports for different purposes such as understanding the company's financial position.  Both the business and the external users look at the financial statement to evaluate business profitability.

 On the other hand, managerial accounting is the process where managers of a company focus on business transactions and use the accounting data to plan for the future (Hermanson et al. 2011).   In other words, the accounting information enables the managers to make sound decisions regarding business operations.  Note that in managerial accounting, the managers want to know the overall company's operations. It looks for a detailed report such as the profits by-products to understand the problem and fix it (Hermanson et al. 2011).   The accounting information help the decision makers outside and inside the organization to understand the business transactions and create financial statements.

 What types of financial statements are used by business organizations?

 Business organizations use four financial statements.  First, they use income statements- this helps the organization evaluate the profitability within a given period (Hermanson et al. 2011).   The organization compares the cash from sales of products and the costs incurred.    The sales of products are the revenue and the organizations expects the revenue to be high that the expenses to avoid net loss.

 Secondly, organizations use the statement of retained earnings to evaluate how the company has used its net profit left over after distributing dividends to the shareholders (Hermanson et al. 2011).  The left over is used by the company for future business activities and therefore the statement gives a detail of the amount of retained earnings or profits that the company has.

  Balance sheet is also a type of financial statement that allows the business to analyze the financial position of a business in terms of the assets, liability and shareholder's equity within a given period.

Finally, the cash flow statement allows the company to evaluate the money entered in the business either through customer payment, bank interest, direct loan, and how money moves out from the business either through salaries, paying dividends, and other operating activities.

 

Reference

 Hermanson, H., Edwards, E., & Maher, M. (2011). Accounting Principles: A Business

Perspective, Financial Accounting (Chapters 1–8).