Financial Statements Introduction

Financial Statements Introduction - Overview Financial...

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Overview – Financial Statements University of Alabama at Birmingham CE 395 Summer 2005 All managers, investors and employees require financial information to evaluate company performance and prospects for the future. Standard practices for financial accounting, referred to as generally accepted accounting practices [GAAP], have long been established and legal requirements for reporting information depend on the type and size of company. Accounting information can be defined in many ways, but it is typical to generally discuss accounting information in two categories: Financial Accounting and Managerial Accounting. Financial Accounting: Financial accounting information is reported in statements that are useful for people who are "outside" or external to the organization such as shareholders, creditors, government agencies, etc. In the sense that management uses the Financial Accounting reports to plan business activities and strategy, Financial Accounting and Managerial Accounting overlap. Certainly management must be very much in tune with the content of the Financial Accounting reports and how they compare with the competition. Managerial Accounting: Managerial Accounting information includes both historical and projected or estimated future costs and revenues used to plan daily operations, future operations and future strategic plans and strategies. All corporate business plans incorporate projected Management Accounting financial information. Management Accounting reports need not be prepared according to generally accepted accounting principles. They are prepared based on the varying needs of the management team. Management accounting reports incorporate objectives measures of past operations and necessarily subjective estimates of future events. Using subjective information based on market intelligence, research, design innovations, etc. allows the management team to identify future business opportunities. Managerial accounting reports may be provided periodically, as with financial accounting, or at any time management needs information. For example, if senior management is deciding on a new plant or plant expansion, a managerial accounting report can be developed in a format and within a time frame to assist management in the decision. One of the most useful features of Managerial Accounting reports is that they can be prepared for the entire business entity or a segment of the entity, such as a 1
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division, product, project, or territory. This attribute becomes particularly important as individual division heads are either required their division as a profit center or some other variation of cost versus profit measure. Much of the Engineering Economics analysis work done within companies relies on information found in the Managerial Accounting reports because so much of the outcome depends on uncertain future projected costs and benefits. Nevertheless, it is important for all business managers to appreciation the basics of the Financial Accounting reports. Regardless of the type or size of company, investors and managers utilize three types of financial
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Financial Statements Introduction - Overview Financial...

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