Chapter 1 HW - CA1-1 A. Difference between Financial...

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CA1-1 A. Difference between Financial accounting and Managerial accounting. Financial accounting is used primarily by those outside of a company or organization. Financial reports are usually created for a set period of time, such as a fiscal year or period. Financial reports are historically factual and have predictive value to those who wish to make financial decisions or investments in a company. Managerial accounting is used primarily by those within a company or organization. Reports can be generated for any period of time such as daily, weekly or monthly. Reports are considered to be "future looking" and have forecasting value to those within the company. B. What are the financial statements most frequently provided – 1. The balance sheet 2. The income statement 3. The statement of cash flow 4. The statement of owners’ or stockholders’ equity. Note disclosures are integral part of each financial statement. C. What is the difference between financial statements and financial reporting? Financial Statements refer to the formal record of financial activities of a firm. They include balance sheet, income statement, statement of owners’ or stockholders’ equity, and cash flow statements. All these financial statements are a pre-requisite for financial reporting. Thus it can be said that financial reporting is the whole process of reporting the financial activities of the firm to the external and internal customers and financial reporting is done by making financial statements. CA1-4 Some argue that having various organizations establish accounting principles is wasteful and inefficient. Rather than mandating accounting rules, each company could voluntarily disclose the type of information it considered important. In addition, if an investor wants additional information, the investor could contact the company and pay to receive the additional information desired.
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Comment: Financial accounting is information that must be assembled and reported objectively. Third-parties who must rely on such information have a right to be assured that the data are free from bias and inconsistency, whether deliberate or not. For this reason, financial accounting relies on certain standards or guides that are called "Generally Accepted Accounting Principles" (GAAP). Additionally these standards are needed so that financial statements will fairly and consistently describe financial performance. Without standards, users of financial statements would need to learn the accounting rules of each company, and comparisons between companies would be difficult. Principles derive from tradition, such as the concept of matching. The lack of transparent accounting standards in some companies can increase the difficulty of doing
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Chapter 1 HW - CA1-1 A. Difference between Financial...

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