Financial vs Managerial Accounting

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Things You Must Know

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b

Practice Test

Self Test

Click the “Check Your Answer” box below each question to reveal the correct answer and explanation.

1. A major difference between financial and managerial accounting is

a. government regulations apply to managerial accounting
b. managerial accounting must follow MAAP and not GAAP
c. managerial accounting reports are used externally
d. managerial accounting reports are used exclusively by management

Answer
D. All of the above are true with respect to management accounting.
2. Management accounting

a. is more forward looking than financial accounting
b. is not focused on external reporting requirements
c. is more concerned with useful information than accurate information
d. all of the above.

Answer
D. There are no rules or regulations for managerial accounting. Management reports are flexible and are designed to be useful for internal decision making. Management reports are not provided outside the company.
3. Management accounting is directed towards meeting the needs of

a. regulatory agencies, such as the IRS and the SEC
b. external users
c. internal users
d. stockholders of the company

Answer
C. Management accounting is directed towards helping management, internal users, make decisions. External users, a., b., and d, do not see or use reports prepared specifically for management decision making.
4. Financial accounting is directed towards

a. internal reporting
b. parts of the organization rather than the whole company
c. reporting that is verifiable and historical
d. management needs

Answer
C. Financial accounting records, summarizes and reports historical transactions that are verifiable. Reports are then provided to those outside the company. Financial accounting reports are related to the entire company. All other answers are related to managerial accounting.
5. The organization that is primarily responsible for sharing general guidelines for management accountants is

a. the internal revenue service
b. American Society of Certified Public Accountants
c. Institute of Certified Management Accountants
d. Institute of Management Accountants

Answer
D. The Institute of Management Accountants primary purpose is to share information and provide general guidelines for management accountants. They also sponsor the CMA examination and certification.
6. Ethical standards for managerial accountants are primarily related to the areas of

a. disclosure, decision making, and planning
b. competence, education, and creativity
c. competence, confidentiality, integrity, objectivity
d. decision making, planning, education, and competence

Answer
C. The four main areas of ethical responsibility for management accountants are listed in c. above.
7. Managers use the following information for decision making

a. financial statements since they are more relevant
b. precise information
c. information relevant to the decision that is being made
d. information that is relevant to the total organization

Answer
C. It is the managerial accountant’s responsibility to provide whatever financial or qualitative information is necessary to make a good business decision. The information will be relevant to the part of the business that is impacted by the decision, not the total company. The managerial accountant does not have the time luxury for it to be precise. Financial information focuses on past information rather than the future.
8. The process of managing day to day operations is

a. planning
b. directing
c. controlling
d. measuring

Answer
B. Directing is the process that management does to keep operations running smoothly on a day to day business.
9. An organization chart shows

a. all areas of responsibility for managers
b. informal communication
c. formal lines of authority
d. profitability by department

Answer
C. An organization chart shows who reports to who for each major piece of the company, which are formal lines of authority
10. Allowing lower levels of management to make decisions is

a. a centralized organization
b. decentralization
c. always done in a company
d. decided on a decision by decision basis

Answer
B. A decentralized organization allows for decision making at lower levels of management. Centralized organizations make all major decisions at the top. The type of structure a company has is dependent on many factors such as the culture of the company, the size of the company, experience of management.
11. When following the Standards of Ethical Conduct for Management Accountants, an accountant who is faced with an ethical decision should first

a. write a memo describing the issue and publish it in the local newspaper
b. clarify the issue with a competent advisor
c. follow the established procedures of the organization, which normally is to
discuss the issue with the immediate supervisor
d. discuss the issue with all in the company who will listen

Answer
C. According to the standards, the accountant should follow established procedures until they determine the procedures are not resolving the issue. Confidentiality should be maintained.
12. A managerial accountant does not perform which of the following?

a. prepare budgets
b. file and prepare tax returns with the IRS
c. compare actual results to budgets
d. prepare reports which show individual department performance

Answer
B. The managerial accountant is responsible for doing all of the above except b. which is done by a financial accountant.
13. Which of the following characteristics is related to management accounting?

a. use of generally accepted accounting principles for all reportsIncorrect
b. reporting on historical transactions
c. reporting on various parts of the organization
d. reporting only on the organization as a whole

Answer
C.  Management accounting focuses on providing information to management at various departments within the organization. It is not governed by GAAP for reporting and does not report on the historical results of the organization as a whole. Management accounting is concerned with providing reports for decision making relative to the future.
14. The process of making decisions about future operations is

a. planning
b. controlling
c. implementing
d. monitoring

Answer
A. By definition, planning is the process of making decisions related to the future.
15. Managers involved in the process of controlling do all of the following except

a. compare actual results to budgets
b. identify the cause of differences in budgeted amounts and actual amounts
c. take corrective action
d. revise the budget

Check Your Answer
D. Revising the budget is a planning activity. All others listed above are functions of controlling.