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Managerial Accounting Help


All of us, at one time or other comes across basic economic problems, such as how to apportion scarce resources. This is a problem faced by all of use as an individual member of society, government, or company. We all face this kind of problem in our day to day life as an individual or as a part of an organization.

Financial markets are one of the efficient methods for channelizing the flow of resources from investors to the companies where these will be utilized. Banks and other established lending institutions also allocate scarce resources to companies. This is done by way of lending or providing them with credit facilities. Even government allocates resources to different segments of the society in certain proportions. This is done by way of collecting taxes from individuals and companies and then re- distributing them to respective recipients. The main purpose is to achieve social and economic objectives.

All of these institutions make use of managerial accounting as the basic source of information, based on which decision for allocation is taken. The corporate financial statements are analyzed by investors and stock market analysts. These statements are prepared in line with Generally Accepted Accounting Principles. Financial statements, projections of cash flows, and financial performances are also reviewed by banks. Income for financial reporting purposes is calculated based on accounting principles. Similarly, income earned is also taxed on the basis of slightly different manner by the Internal Revenue Service.

When a company makes a decision, it is based on decision on management accounting information. The top management of any company takes several decisions such as what products to develop, which markets to enter, how to source production. All these decisions are not based on the last annual report or other financial accounting report. This is because by the time annual report is made available, the information contained therein may be too old and not practical. Management accounting is the information that manager utilize for decision-making. Financial accounting, on the other hand, is the information provided to external users.

Financial accounting and management accounting deal with allocation of scarce resources. The difference between the two is the while the former is the main source of information for decision of hot to allocate resources among companies, the later is the main source of information that is helpful for managers in controlling activities in their firms. It helps them in taking decision about launching, selling and manufacturing a product. Based on this managers allocate the resources of the companies.

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