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ACC209-Assignment I
Course code
Student name
Student ID
Due date -
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1.
1. Meaning
Financial Accounting is a basic form of accounting system focused on the
preparation of financial statements of a business in order to provide information
about financial situations to the stakeholders and interested parties.
Whereas, Managerial accounting is an accounting system in which financial
information is presented to the manager of a business in order to formulate plans,
policies, and strategies to run business operations effectively.
For example – if the balance sheet is prepared to present financial information to
government or stakeholders it is financial accounting, but if cost report, profitability
analysis etc is being prepared then it is Managerial accounting.
2. Nature
Financial Accounting is historical in nature and past records and transactions are
analysed for financial position in the past. But Managerial accounting is future
oriented and helps to make decisions regarding the future.
3. Users
Financial Accounting is used by both external and internal users like stakeholders or
government. But Managerial accounting is only used by internal users like managers
for decision making.
4. Rules and Regulations
Financial Accounting operates under rules of Generally Accepted Accounting
Principles (GAAP) or International Financial Reporting Standards (IFRS) whereas
managerial accounting operates freely without any regulations.
5. Publishing & Auditing
Financial statements are required to be published and audited by formal auditors but
managerial reports are not meant to be published or audited because they are for
internal use.
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6. Time Span
Financial statements are prepared generally for a fixed period i.e. one financial year
but managerial reports can be prepared when required on the basis of strategies or
decisions to be implemented for better efficiency or profitability. (Khatabook, 2020)
2.
Manufacturing Companies
Merchandising Companies
Manufacturing companies are involved in Merchandising companies are those who
production of goods by transforming raw buy
&
sell
goods
without
any
materials into finished goods through manufacturing process but by taking
manufacturing process. (Natter, 2019)
them from manufacturing and supplying
to consumers directly. (Natter, 2019)
For example – a car manufacturing For example – A clothing retailer buys
company produces cars by assembling directly from manufactures and sells
components like engines, interiors and clothes
to
consumers
without
any
electronics and goes through production production process.
process by creating these components
from raw materials like iron and steel.
The tools are used in manufacturing The tools are not used in merchandising
companies
for
production
and
heavily on the machinery.
rely companies but the internet, social media
or marketing channels, and physical
stores are sufficient to generate sales
and run business efficiently.
Manufacturing companies need inventory Merchandising companies also require
for raw materials, work-in-progress and inventory but for direct sale to customers
finished goods.
Manufacturing
and prevent stock-outs.
companies
have
the Merchandising companies do not have
capability to customize their products this capability but they have to sell it as it
according to needs of the customers.
was purchased from manufacturers.
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3.
Direct Cost – Direct Costs are those expenditures that can be attributed to a specific
product, project or process. For example – Labourers hired for constructing a
building will be direct cost to construct that building. Another cost like direct material
for production, direct equipment purchased for a business etc. can be called direct
costs.
Indirect Cost – Indirect Costs are those which cannot be easily attributed to a
specific product or project but can include costs incurred to maintain and run any
business. For example – if an office building is rented, then these expenses of rent
will be indirect costs because this does not contribute to creation of any product or
service. Another example like electricity and maintenance costs can also be
associated. (Spielman, 2023)
4.
Cost of Goods Sold is the cost of producing the goods that are sold by a company.
To calculate COGS in a manufacturing company, it adds beginning inventory and
additional purchases and subtracts ending inventory from this. Thus, it calculates
COGS. (Fernando, 2023)
COGS = Beginning Inventory+P−Ending Inventory
This is different in the case of merchandising companies because they don’t do any
production. They calculate it by summing up costs of purchases and additional
expenses on purchases in which freight and import duties might be included. Thus it
is calculated by –
COGS = Opening Inventory (including freight) + Purchases - Closing Inventory
5.
The three guidelines that help management accountants provide the most value to
managers can be described as per following 1. First guideline that helps management accountants in delivering value to
managers is the cost-benefit approach. This states that costs incurred in a
business should be able to generate revenue more than costs. E.g. if a plant
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is set up for $10,000 then it must generate revenue of more than 10,000 in
one financial year.
2. Different cost for different purposes is the second guideline that helps
management accountants in providing value as this helps in differentiating
costs incurred and thus cost per unit economy is easily calculated with this
approach. For example – in a manufacturing direct cost and indirect cost must
be separated to calculate actual costs of manufacturing of goods and per unit
costs as well.
3. The third guideline is that timely information should be presented to
managers so that effective decision making can be facilitated by analysing
data and financial statements. This is essential for faster decisions in an
organization and facilitates strategic planning for the future business
decisions.
6.
Yes, I agree that knowledge of technical issues such as computer technology is
necessary but not sufficient to become a successful accountant. This is because
there are additional skills and knowledge that are pertinent to become an accountant
like knowledge of accounting practices, accounting rules and regulations, ability to
prepare financial statements, knowledge of general business practices, critical
thinking skills and data analysis skills. These skills are critical for an accountant
because he has to present financial information to investors or stakeholders along
with technical proficiency in computers.
Accountants are required to analyse patterns and trends iand draw meaningful
insights from financial information. They have to present data in the form of charts,
tables and diagrams for a better picture of business. They have to use analysing
skills to analyse complex data. In addition to this they must be well-versed with
Generally Accepted Accounting Principles (GAAP) or International Financial
Reporting Standards (IFRS) etc. to present basic information of transactions
according to principles of accounting. Thus, it can be inferred that however technical
issues knowledge may be required in accounting, but more than that, accounting and
interpreting data is a more important skill that is required to become a successful
accountant. (Accounting.com Staff, 2022)
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References
Accounting.com Staff. (2022, September 23). Top accountant skills. Accounting.com.
https://www.accounting.com/resources/top-skills-for-accountants/
Fernando, J. (2023, May 9). Cost of goods sold (COGS) explained with methods to
calculate it. Investopedia. https://www.investopedia.com/terms/c/cogs.asp
Khatabook. (2020, February 11). Differences between financial accounting and
Management Accounting. Khatabook. https://khatabook.com/blog/differencebetween-financial-accounting-and-management-accounting/
Natter, E. (2019, February 19). What are the differences between a merchandising
company & A manufacturing company?. Small Business - Chron.com.
https://smallbusiness.chron.com/differences-between-merchandising-companymanufacturing-company-21423.html
Spielman, E. (2023, February 22). Direct costs vs. indirect costs: What’s the
difference? Business News Daily. https://www.businessnewsdaily.com/5498direct-costs-indirect-costs.html