Solution Manual for Managerial Accounting 4th Edition By Whitecotton
Chapter 1
Introduction to Managerial Accounting
ANSWERS TO QUESTIONS
1. The primary difference between financial and managerial accounting is the intended
user of the information. Financial accounting is used by external parties such as
investors, creditors, and regulators, while managerial accounting is used by internal
business managers.
2. Different users will have different information needs, which give rise to many other
differences between financial and managerial accounting. Financial accounting
includes standardized financial statements that are objective, reliable, and historic
in nature. These reports are prepared on a periodic basis and are reported at a
highly aggregate level, for the company as a whole. Managerial accounting
information is much broader in nature and can encompass budgets, performance
evaluations, and cost accounting reports. The information tends to be more
subjective and future-oriented in nature and must be relevant to the particular
decision the manager is trying to make. The information in these reports tends to be
more detailed and segmented, depending on the manager’s area of responsibility.
3. GAAP-based financial statements, which are prepared for external parties, will not
necessarily be useful for internal managerial decision making. Managers often need
more detailed information than is included in historically oriented financial
statements. They may need the information broken down by division, business
segment, or product line. In addition, managers are typically more interested in
what will happen in the future, as opposed to the past. Even if the information is not
as objective and verifiable as what would be included in a financial report (for
example, it may include more budgeted or forecasted data), managerial accounting
information must be relevant to the particular decision the manager is trying to
make.
4. Service companies sell services (non-tangible items) to consumers or other
businesses. Merchandising companies sell finished goods that they have
purchased from someone else. Manufacturing companies make a product using
raw materials, then sell it to another manufacturer, merchandising company, service
company, or individual consumer.