Case Study

1. Discuss the differences between financial accounting and management accounting. Financial accounting is for external parties and management accounting is for internal use. Financial accounting is obligatory and management accounting is up to the company. Financial accounting is about the situation of the entire company whereas management accounting concentrates in just smaller aspects of that company. Financial accounting report must be done according to the law, whereas management accounting doesn't have a defined structure and each business can do it in the way that they find it more useful. Financial accounting is about past events while management accounting is about both, past and future information. And the last is about the frequency of the report. According to the law financial accounting report should be done at least once a year. While management accounting report is up to the needs of the managers for information in order to make the best decision.

2. Explain management accounting functions. 1) Allocate costs between cost of goods sold and inventories for internal and external profit reporting Each firm needs to calculate the profit. In order to do so, must calculate (The total value of the stacks of completed products and work in progress + any unused raw materials) (current period's costs). This information is required for external accounting requirements and also sometimes in a monthly frequency for internal profit reporting. 2) Provide relevant information to help managers make better decisions This includes first that managers should control carefully that the firm does only profitable activities. This information is necessary about resource allocation and discontinuation decisions. Then this information is important in strategic decisions (new products and services introduction, new investments). It is extremely necessary that the cost information is accurate, because on this depends the process of decision making. 3) Provide information for...