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1.1 characteristics of Managerial Accounting

Learning Objective

Compare qualities of financial and also managerial accounting.

Question: The issue facing the president at Sportswear is a usual one. Companies prefer not to disclose more information 보다 is compelled by U.S. GAAP, however they would like to have much more detailed information for interior decision-making and also performance-evaluation purposes. This is why it is vital to distinguish in between financial and also managerial accounting. What is the difference between information all set by gaue won accountants and information ready by managerial accountants?


Answer: financial accountingProvides historical financial details to exterior users. Concentrates on giving historical financial details to exterior users. External users space those external the company, including owners (e.g., shareholders) and also creditors (e.g., financial institutions or bondholders). Jae won accountants reporting to external users are compelled to monitor U.S. Normally Accepted accountancy Principles (U.S. GAAP)A set of audit rules that must be followed to carry out consistency in reporting financial info to exterior users., a set of audit rules that calls for consistency in recording and reporting gaue won information. This information typically summarizes overall agency results and also does not administer detailed information.

You are watching: Which of the following is a characteristic of managerial accounting?

Managerial accountingFocuses on inner users, including executives, product managers, sales managers, and also any various other personnel in the company who use accountancy information for decision making. Focuses on inner users—executives, product managers, sales managers, and also any other personnel within the organization who use audit information to make essential decisions. Managerial bookkeeping information need not conform v U.S. GAAP. In fact, conformance v U.S. GAAP might be a deterrent to getting valuable information for inner decision-making purposes. Because that example, when developing an inventory price for one or more units that product (each jersey or hat created at Sportswear Company), U.S. GAAP needs that production overhead costs, such as factory rent and also factory energy costs, be included. However, for inner decision-making purposes, it could make much more sense to incorporate nonproduction costs that space directly linked to the product, such as sales rose or governmental costs.


Question: that clear that financial accounting focuses on reporting to outside users if managerial audit focuses on report to inside users. What details characteristics would certainly we intend to watch in managerial accounting information?


Answer: Managerial bookkeeping often concentrates on making future projections because that segments of a company. Expect Sportswear firm is considering presenting a new line of coffee mugs with team logos on every mug. Management would certainly need in-depth financial projections because that sales, costs, and the resulting revenues (or losses). Although historic financial audit data from other product lines would certainly be useful, prepare projections for the brand-new line of mugs would be a managerial accounting function.

Another characteristic of managerial bookkeeping data is that is high level that detail. As provided in the opening dialogue between the president and also accountant in ~ Sportswear Company, the financial info in the yearly report gives a basic overview of the company’s jae won results but does not administer any detailed information about each product. Information, such as product profitability, would certainly come indigenous the managerial accounting function.

Finally, managerial accounting information regularly takes the kind of nonfinancial measures. Because that example, Sportswear company might measure up the percent of defective products produced or the portion of on-time deliveries to customers. This sort of nonfinancial information originates from the managerial accounting function.

Table 1.1 \"Comparison the Financial and also Managerial Accounting\" summarizes the characteristics of both managerial and financial accounting.

Table 1.1 to compare of Financial and Managerial Accounting

Managerial bookkeeping Financial accountancy
Users Inside the organization Outside the organization
Accounting rules None U.S. Normally Accepted audit Principles (U.S. GAAP)
Time horizon Future projections (sometimes historic if in detail) Historical information
Level of detail Often presents segments of an company (e.g., products, divisions, departments) Presents overall company information in accordance with U.S. GAAP
Performance measures Financial and nonfinancial Primarily financial

Follow-Up in ~ Sportswear Company

Question: What go the president at Sportswear firm learn around product profitability from the information noted by the managerial accountant?


Answer: The chairman at Sportswear, Dana Matthews, learned that the hats product heat was much more lucrative than expected, accounting for 55 percent that the that company profits also though initial estimates were the the cap segment would certainly account because that 40 percent of firm profits. Whereas the jerseys product line was much less profitable than expected, audit for 45 percent the the this firm profits.

There are plenty of issues associated with determining product profitability, including how to allocate costs that space not quickly traced to every product and also whether the product revenue and also cost information is accurate enough to make important managerial decisions. This important problems will be handle throughout the book.

Key Takeaway

Financial accountancy provides historical financial info for outside users in accordance with U.S. GAAP. Managerial accounting provides comprehensive financial and nonfinancial info for inner users who usage the details for decision making, planning, and control purposes.

Review difficulty 1.1

suppose you are the co-owner and manager the a retail save that sells and repairs mountain bikes. Administer one example of a financial bookkeeping report that would certainly be advantageous to you and also your co-owner. Administer two instances of managerial audit reports that would certainly be valuable to you together the manager. Provide two instances of nonfinancial actions used by a pizza eatery that serves food in the restaurant and offers delivery services.

For every report provided in the following, indicate whether the relates to financial or managerial accounting. Define the reasoning behind her answer because that each item.

See more: Which Of The Following Is An Example Of A Normative Age-Graded Change?

Projected net earnings for next quarter by department Defective goods produced as a percentage of all goods developed Income statement because that the most present year, ready in accordance v U.S. GAAP Monthly sales damaged down by geographic region Production department budget plan for the next quarter Balance paper at the finish of the existing year, prepared in accordance through U.S. GAAP

Solution come Review problem 1.1

examples of nonfinancial measures include percentage that on-time deliveries, portion of melted pizzas, average time required to prepare pizza for restaurant customers (from taking a customer’s bespeak to providing the pizza in ~ the customer’s table), and results of customer satisfaction surveys. (These are simply a couple of examples. There are plenty of correct answers come this problem.)

The answers appear as follows. Be certain you defined your answers.

Managerial accounting—information is because that future projections and also involves segment of the agency Managerial accounting—nonfinancial comprehensive measure the defective products Financial accounting—historical details prepared in accordance through U.S. GAAP Managerial accounting—detailed information listed monthly Managerial accounting—information is for future projections and involves a segment of the agency Financial accounting—historical info prepared in accordance v U.S. GAAP