Accounting, 3rd Edition

Appendix: Answers

Chapter 1: Discussion Answers

The answers provide some outline points for discussion.

A1

Accounting is important because it is the language of business and provides a means of effective and understandable business communication. The general terminology of business is thus accounting-driven. Concepts such as profit and cash flow are accounting terms. In addition, accounting provides the backbone of a business's information system. It provides figures for performance measurement, for monitoring, planning and control and gives an infrastructure for decision making. It enables businesses to answer key questions about past business performance and future business policy.

A3

There are many differences. The six listed below will do for starters! (a) Financial accounting is designed to provide information on a business's recent financial performance and is targeted at external users such as shareholders. However, the information is also often used by managers. By contrast, management accounting is much more internally focused and is used solely by managers. (b) Financial accounting operates within a regulatory framework set out by accounting standards and the Companies Acts. There is no such framework for management accounting. (c) The main work of financial accounting is preparing financial statements such as the statement of financial position and income statement. By contrast, management accounting uses a wider range of techniques for planning, control and performance, ...