What is the difference between financial reporting and management accounting?
Financial reports can provide an organization with valuable information that can be shared with their external stakeholders. These stakeholders consist of investors (shareholders) and potential investors who are primarily concerned about how the organization is performing in relation to economic growth and financial gains that can permit them to make informed decisions on investments. On the other hand, managerial reports are mostly used by decision makers within the organization. The information that is placed in the managerial report aids managers in determining the productivity of their internal procedures with an assessment to assist them in formulating, planning and implementing more effective strategies to mend any breaches or gaps that may have arisen.
Financial reports are said to be primarily for addressing antique or historical incidences which might of an effect on past financial events; however, managerial accounting is more considered as a futuristic tend where the importance is based on results for events that are yet to occur. For instance, in my organization we forecast how much ice cream we will sell base on the previous year using margins in stand of targets. Promotions such as French Vanilla pint for sale is matched to the previous year.
Financial reports have more detailed information that tends to be more objective and the data in the report can be verified more easily by external stakeholders; whereas the managerial report is more specific and structured in order to address decisions relating to a particular item that may have been identified by the decision makers.
Managerial reports also must be prepared in a timely manner to ensure that managers are requite to make wise decisions in order to resolve certain problem that may occur at hand,
What are the benefits and potential problems associated with cost-volume-profit (CVP) analysis?
Cost-volume-profit (CVP) analysis can be defined as an influential device that allows managers to monitor how profits of an organization. By using these devices managers will be aware of shifts when it comes to sales and economic growth which will allow them to respond to changes in volume sales, product prices and operational cost. The information which is provided by CPV analysis allows managers to strategize and determine what products or service from their operation that needs to be given more priority in order to accomplish ideal volume sales and profit level s as targeted by the organization.
Based on the information about the different between financial reporting and managerial accounting and the cost-volume-profit (CPV). It is my recommendation that the organization should adopt the cost-volume-profit (CPV) analysis because it helps with evading consumption by showing resources which were properly planned within the financial year. The organization will have a stronger and clearer picture of the activities being done and will be able to decide on alternatives courses of action which needs to be taken in order to achieve their desired goals.
Kaplan, R.S. & Cooper, R. (1997) Cost and effect: using integrated cost systems to drive profitability and performance. Boston: Harvard Business School Press.
Code Connect, (2006), Cost – Volume – Profit Analysis, Journal of Corporate Accounting and Finance, pp.
Kim, S.H., (2014), Cost – Volume – Profit for a Multi – Product Company: Micro Approach, International Journal of Accounting and Financial Reporting, Vol. 5(1)Chung, K.H., (2006), Cost-Volume-Profit Analysis under Uncertainty When the Firm Has Production Flexibility, Journal of Business Finance and Accounting, Vol. 20(4), Wiley Online Library.