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Unformatted text preview: CHAPTER 20 Managerial Accounting ANSWERS TO QUESTIONS 1. (a) Disagree. Managerial accounting is a field of accounting that provides economic and financial information for managers and other internal users. (b) Pat is incorrect. Managerial accounting applies to all types of businesses—service, merchandising, and manufacturing. 2. (a) Financial accounting is concerned primarily with external users such as stockholders, creditors, and regulatory agencies. In contrast, managerial accounting is concerned primarily with internal users such as officers, department heads, managers, and supervisors in the company. (b) Classified financial statements are the end product of financial accounting. The statements are prepared quarterly and annually. In managerial accounting, internal reports may be prepared daily, weekly, monthly, quarterly, annually, or as needed. (c) The purpose of financial accounting is to provide general-purpose information for all users. The purpose of managerial accounting is to provide special-purpose information for a particular user for a specific decision. 3. Differences in the content of the reports are as follows: FINANCIAL Ø Pertains to entity as a whole and is highly aggregated. Ø Limited to double-entry accounting system and cost data. Ø Reporting standard is generally accepted accounting principles. MANAGERIAL Ø Pertains to subunits of the entity and may be very detailed. Ø May extend beyond double-entry accounting system to any type of relevant data. Ø Reporting standard is relevance to the decision to be made. In financial accounting, financial statements are verified annually through an independent audit by certified public accountants. There are no independent audits of internal reports issued by mana-gerial accountants. 4. (a) The categories of ethical standards for management accountants are (1) competence, (2) con-fidentiality, (3) integrity, and (4) objectivity. (b) No. The ethical standards state that management accountants shall not condone the com-mission of unethical acts by others within their organizations. 5. Karen should know that the management of an organization performs three broad functions: (1) Planning requires management to look ahead and to establish objectives. (2) Organizing and directing involves coordinating the diverse activities and human resources of a company to produce a smooth-running operation. (3) Controlling is the process of keeping the activities of the enterprise on track. 6. Disagree. Decision making is not a separate management function. Rather, decision making in-volves the exercise of good judgment in performing the three management functions explained in the answer to question five above....
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