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.

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