Analyzing Financial Statements for Planning and Cost

This memo describes the similarities and differences between financial and managerial accounting, and discusses the information contained in the balance sheet, statement of cash flows, income statement and statement of stakeholders’ equity.

Analyzing Financial Statements for Planning and Cost
Student’s Name
Affiliate Institution
Date

Introduction
This memo goes out to my assistant Susan Thompson. It describes managerial accounting
which plays a crucial role in our company’s management matters. Since you fully comprehend
financial accounting and have experience in it, this memo will relate managerial accounting to
the latter. It will bring forth the similarities and differences between financial and managerial
accounting for easier understanding.
Similarities and Differences between Financial and Managerial Accounting
Similarities
The likeness between financial and managerial accounting is found in their accounting
methodologies. They both make use of data on the institution’s assets, liabilities, expenses,
revenues, and other financial statements. Both are important in finding out the company’s cash
flows by quantifying transactions and business activities (Richardson, 2017). They both to the
creation of financial reports which greatly aid the management and other stakeholders in the
decision making process. They are also helpful in coming up with performance reports which are
vastly vital in comparing the expected results with the actual outcomes of the organization
(Weygandt, Kimmel & Kieso, 2015).
Differences
Managerial accounting is the identification, measurement, accumulation, analysis,
preparation, interpretation and communication of cost information to assist internal managers in
making the proper decisions concerning the organization (Walther & Skousen, 2009). Financial
accounting statements, on the other hand, are presented for use by outside stakeholders thus are
viewed to be more formal (Saadi & Kamal, 2012).

The main purpose of managerial accounting is to provide the costs of products, that is,
product costing. However in financial accounting, a sequence of accounting principles that
control and report all the corporation’s financial accounts are employed (Horngren et al., 2012).
Examples of Managerial Accounting Reports are:
Budget reports this documents the expected expenses and revenues. Managers might use
budgeting information to reduce costs and regenerate terms with suppliers and vendors and also
to provide better incentives for employees (Francis & Ayoola-Akinjobi, 2016).
Cost managerial accounting reports: this computes the costs of objects engaged in the
manufacturing process including overhead costs, costs of raw materials and labor. This helps
managers to decide product selling price, whether to change the production technique as well as
provide product cost for inventory valuation and income determination.
Part 2
To the Board of directors, this memo discusses the information contained in the balance sheet,
statement of cash flows, income statement and statement of stakeholders’ equity.
1) Balance Sheet
The balance sheet provides financial information about assets, liabilities, and capital of the
company at a particular point in time.
Assets: these are all the resources of a corporation including buildings, vehicles, machinery, and
stocks of goods.

Liabilities: amounts that the business owes other people such as funds borrowed by the business,
money owed for the supply of goods and services and expenses incurred by the business that
have not yet been paid.
Capital: this describes the owner’s equity or net worth. It comprises of the funds invested by the
owners into the company plus any profits retained for use in the business less the share of profits
paid out of business to the owners.
2) Income Statement
This is a financial statement that finds out the performance of the corporation, predict future
performance and assess the company’s capability to generate cash flows in the future. It contains
the company’s revenues, expenses as well as the net income or loss incurred during a specified
period.
3) Statement of Stakeholders’ Equity
This is a financial statement issued as part of the balance sheet (Investopedia, 2017). It
pronounces changes in the value of ownership interest in the company for a specific accounting
period. It includes the following component:
Common Stock: it is listed on this statement as par value, and it is a type of stock that gives its
holders voting rights on company decisions.
Preferred Stock: it gives owners a higher claim on the corporation’s assets and earnings. If a
company needs to liquidate, the preferred stock owners will be paid before the common stock
owners.

Treasury stock: it is stock repurchased by a company to avoid hostile takeovers or to boost its
price.
Contributed Capital: it is the additional amount shareholders pay over the stock’s par value.
Retained earnings: total incomes of the company that has not been distributed to shareholders,
4) Statement of cash flows
This statement shows how changes in the balance sheet and income impact the cash
equivalents of the company. It embraces cash flows resulting from investing, operating and
financing activities. It may also disclose non-cash financing operations.
Use of Accounting Information
Decisions concerning the expansion of the organization can be made depending on the
liabilities of the company. The managers are also able to determine whether the current
expenditures are hurting the business. The earnings of the corporation can be established and
decisions made on how best to increase them (Siyanbola, 2012).

References
Francis, U., & Ayoola-Akinjobi, O. (2016). Accounting information system as Aids to
Managerial Performances.
Horngren, C., Harrison, W., Oliver, S., Best, P., Fraser, D., & Tan, R. (2012). Financial
accounting. Pearson Higher Education AU.
Investopedia, (2017). Stockholders’ Equity.
Richardson, A. J. (2017). The Relationship between Management and Financial Accounting as
Professions and Technologies of Practice. The Role of the Management Accountant:
Local Variations and Global Influences.
Saadi, H., S., & Kamal, H., M. (2012). The domination of financial accounting on managerial
accounting information: An empirical investigation in the UAE. International Journal of
Commerce and Management, 22(4), 306-327.
Siyanbola, T. T. (2012). Accounting information as an aid to management decision
making. International Journal of Management and Social Sciences Research (IJMSSR)
ISSN, 2319-4421.
Walther, L. M., & Skousen, C. J. (2009). Managerial and cost accounting. Bookboon.
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2015). Financial & managerial accounting.
John Wiley & Sons.