U1 DB 2

Response 1:

 
Part 1
Memo: Understanding Similarities and Differences between Financial and Managerial Accounting
Attention : Susan Thompson

Susan- In an effort to get you up to speed on our expectations, I wanted to provide some details on the differences you can expect to see between managerial and financial accounting and provide you some examples from both areas.
Financial accounting is the backbone of the day-to-day functions of accounting. From payables, to receivables to collections, this area ensures all of the outstanding bills and debts are paid so the organization can operate. The details received from the day to day management of financial accounting are provided to stakeholders’, creditors, vendors and management to ensure the organization is being forthcoming and so management can use the data to further the position of the company(MUSE: Financial and Managerial Accounting). Reports provided within financial accounting include the following:
Income Statement
Statement of Owners Equity
Balance Sheet
Cash Flow Statement
Each of these documents is used by managerial accounting team members to help make decisions about the future of the organization.
Managerial accounting is optional. This is a team of managers who are trying to plan for future business and need to understand the ebbs and flows of the business itself and how any of the business segments or areas can function more productivity. One thing to note is that Financial Accounting is handled by external persons who try to ensure the strength of financial decisions whereas Managerial Accounting is managed by internal managers responsible for the success of the organizations. Financial Accounting Reporting for the IRS is mandatory and GAAP accounting rules must be adhered too. Managerial Accounting has no set rules nor are they bound to any oversight group and are not required to provide any sort of mandatory reporting.
Additional reports used to analyze the health of an organization are horizontal and vertical analyzes.
Horizontal analysis is where we take a series of reports year over year and try to determine what trends were in assets, equity, cash flow, etc. Using these reports allows the management team to better understand the business and what could be coming in the future. Vertical analysis is where we analyze financial statements based on entries for assets, accounts, liabilities and equities. We review each of these as a proportion of the total account and try to understand what led to any inconsistencies.
If you need any further clarification regarding these concepts, reporting or analysis, please reach out to me directly.
Thank You

Part 2
Attn: Board of Directors

MEMO 
In an effort to help our team better understand how we can use our current and previous accounting information to help plan and control for future business, I have broken down details on four key financial reports we receive regularly. These reports include the income statement, statement of owners’ equity, balance sheet and cash flow statement. Each of these statements is unique and can help our organization plan for the future. If there are any questions, you may have regarding how to read or understand these reports, I am happy to meet you one on one. I hope you can see the value of these reports and how key this information is to our team (MUSE, Principles of Financial Statements).
Income Statement- The income statement will include information that measures a company’s performance over a period. This statement key data including expenses relating to operating, sales, expenses, profit and depreciation. This document is helpful to managerial accountants because it provides historical data on the historical performance on the company.

Statement of Owners Equity- This includes the owner’s total equity for a year taking into an account any investments and draws the owner has made that year.

Balance Sheet- This includes assets (current and fixed) as wells as liabilities (current and long term). Owners’ equity is also included. This provides us a better understanding of what profit or loss we are operating under.

Cash Flow Statement- This statement includes the monies that are coming in and going out. This report can include will also consider investments and financing activities and provide a total of cash available at the close of the year.
Thank You

Response 2:

 
TO: Sharon Thompson
FROM: Supply Chain Planning Manager
Subject: Differences between Financial and Managerial Accounting
Date: 5/18/2018

 
Hi Sharon and welcome to the Planning & Purchasing Department here at EEC.  It is my understanding that you have experience in financial accounting, I think that is great, and it will be an asset to our department. However, I just wanted to take a few moments to ensure you understand the differences between financial accounting and managerial accounting and how managerial accounting will help me make the best decisions for the department I can.
Financial accounting for all intents and purpose is to create and distribute the reporting of financial information to external parties such as stockholders, creditors, and regulators. (Garrison, Noreen, & Brewer, 2014). Financial accounting brings attention to the effects of what previous business activities have had on the current economic state of the company; as well as provides financial reporting to the entire company.  Financial accounting is used in summarizing the historical transactions of the company which is used to develop then the four financial statements used by the company, our shareholders and government agencies (Colorado Technical University, 2018).  Those reports are:

Balance sheet
Income statement
Statement of cash flows
Statement of stockholders’ equity

Financial accounting is rule-bound and must always follow the Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IRFS) regulations.  Financial accounting is mandatory for all external reports.  Financial Accounting emphasizeseconomic consequences company performance, past transactions.
Managerial accounting , on the other hand, is used to supply the financial and economic information that is most helpful to managers and other internal company users (Colorado Technical University, 2018). Managerial accounting is used to help me make best the day-to-day decision of the department and segments of the business I am responsible.  For example; I use managerial accounting when I need to know if now is a good time hire new employees, or if what we are purchasing can be purchased elsewhere for better pricing. It will help me to work with the manufacturing teams to determine if buildingspecific items here are better than outsourcing them. Other internal users would include, our CEO, as well as other employees in the company like yourself.
Managerial accounting also focuses on the future of the company business not so much what has happened in the past. Managerial accounting helps managers in the areas of planning, controlling and decision making by helping to establish goals and how to make them a reality. Receiving feedback from others to see that the plans that were developed are moving forward correctly and that the appropriate changes are made when needed, and ensuring that the correct decisions are made for the business, which at times could mean having more than one outcome but choosing the one that is the best. (Garrison, Noreen, & Brewer, 2014). There are also reports that can help with these areas such as:
·  Creating a Budget – which is a detailed plan showing the future that is expressed in quantitative terms.
·  Performance reports – compares budgeted to actual data to identify and learn from high performance and to find areas that need to be improved.
Managerial accounting concentrates on decisions that could affect the future of the company, as well as can be broken down into segments for more natural capturing of information and decision making. (Garrison, Noreen, & Brewer, 2014).  Managerial accounting is also not as ridged as financial accounting, as it is not GAAP/IFRS bound. Managerial accounting emphasizes decisions affecting, the businesses future, segment performance, timeliness, and relevance.
Though both forms of accounting have their place in the company, I hope the information I have shared with you today with help you to understand how managerial accounting helps me to do things that are needed daily to contribute to our company.
TO: EEC Board Members
FROM: Gladys M Artis, Supply Chain Planning Manager
Subject: Differences between Financial and Managerial Accounting
Date: 5/18/2018
CC: Dr. Cynthia Waddell, SVP Supply Chain
Board Members
I would like to take a little time to explain to you the purpose of four critical financial statements that are used to interpret EEC’s economic status during specific times. Each is useful, but they each also have their disadvantages. 

The Balance sheet is a financial statement that is used to give readers a look at a snapshot of the company’s financial standing at a certain point in time.  The balance sheet is used to show the assets of the company (owns), and the company’s liabilities (owe), along with the company’s equity(worth) (Colorado Technical University, 2018).  The equation for determining the assets of a company using the balance sheet is Assets = Liabilities + Shareholders’ Equity.
The income statement is a financial statement that shows over a specific period what were the sources of revenues generated and what the expenses were for those revenues.  (Colorado Technical University, 2018).  Its primary purpose is to determine the net income for the accounting period that is being reported.   This statement is also known as the profit and loss statement or statement of revenue and expense.  This statement provides an overview of the company’s sales and net income (Investopedia.com, 2018).
Statement of cash flows is a financial statement that shows the cash receipts (inflow) and cash payments (outflow) for a period in the company. These cashflows are classified by operating, investing, and financial activities. (Colorado Technical University, 2018).  Having a positive cash flow details that the company’ liquid assets are growing which means there is more money to be able to do business.
Statement of stockholders’ equity- is a portion of the balance sheet that shows the changes in the value of the shareholder/stockholders equity from the beginning of a given accounting period to the end of that time, typically a year. The formula for calculating the stockholder equity is as follows.  Total Assets-Total Liability= Stockholder Equity.  This statement allows the shareholders to see how well their investment is doing.(Motley Fool Staff, 2015)