Management Accounting There Are Several Differences Thesis

Pages: 3 (928 words)  ·  Style: Harvard  ·  Bibliography Sources: 3  ·  File: .docx  ·  Level: College Senior  ·  Topic: Business - Management

Management Accounting

There are several differences between financial reporting and managerial accounting. At the most basic, the two types of reporting are used to meet the needs of two different groups of stakeholders. Financial reporting is typically geared towards external users. In the case of my friend's business, this is the government's taxation arm. In a public company, shareholders, potential investors and regulators would also be included on the list of stakeholders for which financial reports are created.

Financial reporting, therefore, is based around a consistent set of standards (the generally accepted accounting principles) and is conducted solely using the accrual accounting method. This consistency helps external parties measure the firm's outputs

Managerial accounting, by contrast, is focused on helping management to make decisions. Consistency is not demanded, because managerial accounting reports are not subject to audit. Year-over-year consistency helps managers, but there are no standards for consistency from one firm to the next. Because of this, managerial accounting is generally only conducted to the extent that management finds it valuable. However, it can reveal trends and provide information to management that would not have been uncovered in the financial statements.

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Cost-Volume-Profit (CVP) analysis is a method by which the firm can break down its production and profit figures to determine the optimal levels of production/sales for its products, with the goal of realizing the business' potential profit. CVP analysis typically requires management to use different tools, such as a break-even analysis, a contribution margin analysis, and operating leverage analysis in order to make such determinations.

TOPIC: Thesis on Management Accounting There Are Several Differences Between Assignment

CVP analysis allows management to understand the contribution that every product makes to the firm's bottom line. This contribution margin is a key concept in cost volume profit analysis. All other things being equal, the production and sales efforts should be focused on the product with the greatest contribution volume. This will maximize th e firm's profits.

Another benefit of CVP analysis is that it taxes can be factored into the calculations. The major concern for my friend is that his after-tax income is not as high as he would like. Thus, CVP can be used to help him understand not only which products give him the highest gross contribution margin, but the highest contribution net of taxes.

CVP analysis can also be used to work backwards as well. For example, if my friend is having doubts about the viability of his business, he can set a target net income that he wants to achieve. CVP will then allow him to understand what his sales will need to be in order to achieve that. He can adjust the targets for each product to give him a better sense of the sales mix and targets for each product that will allow him to earn the net income he seeks.… [END OF PREVIEW] . . . READ MORE

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Management Accounting There Are Several Differences.  (2009, February 19).  Retrieved September 19, 2021, from https://www.essaytown.com/subjects/paper/management-accounting-several-differences/409389

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"Management Accounting There Are Several Differences."  Essaytown.com.  February 19, 2009.  Accessed September 19, 2021.
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