Question 1.Use the cash flow on total assets ratio to determine which of these t
ID: 2504205 • Letter: Q
Question
Question 1.Use the cash flow on total assets ratio to determine which of these three companies is using its assets most efficiently.
Company A
Company B
Company C
Cash provided by operations
$ 300,000
$ 600,000
$ 400,000
Cash provided (used) by investing activities
Purchase of operating assets
(190,000)
(380,000)
(200,000)
Cash provided (used) by financing activities
Repayment of debt
(100,000)
(210,000)
(190,000)
Net Increase in cash
$ 10,000
$ 10,000
$ 10,000
Average total assets
$ 2,500,000
$ 6,000,000
$ 5,000,000
Question 2. There are many differences between financial and managerial accounting. Identify and explain at least 5 of these differences
Company A
Company B
Company C
Cash provided by operations
$ 300,000
$ 600,000
$ 400,000
Cash provided (used) by investing activities
Purchase of operating assets
(190,000)
(380,000)
(200,000)
Cash provided (used) by financing activities
Repayment of debt
(100,000)
(210,000)
(190,000)
Net Increase in cash
$ 10,000
$ 10,000
$ 10,000
Average total assets
$ 2,500,000
$ 6,000,000
$ 5,000,000
Explanation / Answer
PART-1:-
We know ,
Cash flow on total assets ratio = CASH FLOW FROM OPERTAIONS/AVERAGE TOTAL ASSETS
PARTICULARS
Company A
Company B
Company C
Cash flow on total assets ratio
300000/2500000
= 0.12
600000/6000000
= 0.10
400000/5000000
=0.08
ACCORDING TO THE Cash flow on total assets ratio , COMPANY-A is using its assets most efficiently.
PART-2:-
CITED FROM THE FOLLOWING LINK:- http://www.diffen.com/difference/Financial_Accounting_vs_Management_Accounting
Differences between financial and managerial accounting are as follows:_
Financial Accounting
Management Accounting
External vs. Internal
A financial accounting system produces information that is used by parties external to the organization, such as shareholders, bank and creditors.
A management accounting system produces information that is used within an organization, by managers and employees.
Segment reporting
Pertains to the entire organization or materially significant business units.
May pertain to smaller business units or individual departments, in addition to the entire organization.
Focus
Financial accounting focuses on history.
Management accounting focuses on future & present.
Format
Financial accounts are supposed to be in accordance with a specific format, so that financial accounts of different organizations can be easily compared. (Formal recordkeeping)
No specific format is designed for management accounting systems. (Formal and informal recordkeeping)
Planning and control
Financial accounting helps in making investment decisions, and in credit rating.
Management accounting helpsmanagement to record, plan and control activities to aid decision-making process.
Information
Quantitative and monetary
Quantitative and qualitative; Monetary and non-monetary
Users
Financial accounting reports are primarily used by external users, such as shareholders, bank and creditors.
Management accounting reports are exclusively used by internal users viz. managers and employees.
Reporting frequency and duration
Well-defined - annually, semi-annually, quarterly. (Verifiable)
As needed - daily, weekly, monthly.
Optional?
Preparing financial accounting reports are mandatory especially for limited companies.
There are no legal requirements to prepare reports on management accounting.
Objectives
The main objectives of financial accounting are :i) to disclose the end results of the business, and ii) to depict the financial condition of the business on a particular date.
The main objectives of Management Accounting are to help management by providing information that used by management to plan, evaluate, and control.
Legal/rules
Drafted according to GAAP - General Accepted Accounting Procedure.
Drafted according to management suitability.
Accounting process
Follows a full process of recording, classifying, and summmarising for the purpose of analysis and interpretation of the finnancial information.
Cost accounts are not preserved under Management Accounting. The necessary data from financial statements and cost ledgers are analyzed.
PART-1:-
We know ,
Cash flow on total assets ratio = CASH FLOW FROM OPERTAIONS/AVERAGE TOTAL ASSETS
PARTICULARS
Company A
Company B
Company C
Cash flow on total assets ratio
300000/2500000
= 0.12
600000/6000000
= 0.10
400000/5000000
=0.08
ACCORDING TO THE Cash flow on total assets ratio , COMPANY-A is using its assets most efficiently.
PART-2:-
CITED FROM THE FOLLOWING LINK:- http://www.diffen.com/difference/Financial_Accounting_vs_Management_Accounting
Differences between financial and managerial accounting are as follows:_
Financial Accounting
Management Accounting
External vs. Internal
A financial accounting system produces information that is used by parties external to the organization, such as shareholders, bank and creditors.
A management accounting system produces information that is used within an organization, by managers and employees.
Segment reporting
Pertains to the entire organization or materially significant business units.
May pertain to smaller business units or individual departments, in addition to the entire organization.
Focus
Financial accounting focuses on history.
Management accounting focuses on future & present.
Format
Financial accounts are supposed to be in accordance with a specific format, so that financial accounts of different organizations can be easily compared. (Formal recordkeeping)
No specific format is designed for management accounting systems. (Formal and informal recordkeeping)
Planning and control
Financial accounting helps in making investment decisions, and in credit rating.
Management accounting helpsmanagement to record, plan and control activities to aid decision-making process.
Information
Quantitative and monetary
Quantitative and qualitative; Monetary and non-monetary
Users
Financial accounting reports are primarily used by external users, such as shareholders, bank and creditors.
Management accounting reports are exclusively used by internal users viz. managers and employees.
Reporting frequency and duration
Well-defined - annually, semi-annually, quarterly. (Verifiable)
As needed - daily, weekly, monthly.
Optional?
Preparing financial accounting reports are mandatory especially for limited companies.
There are no legal requirements to prepare reports on management accounting.
Objectives
The main objectives of financial accounting are :i) to disclose the end results of the business, and ii) to depict the financial condition of the business on a particular date.
The main objectives of Management Accounting are to help management by providing information that used by management to plan, evaluate, and control.
Legal/rules
Drafted according to GAAP - General Accepted Accounting Procedure.
Drafted according to management suitability.
Accounting process
Follows a full process of recording, classifying, and summmarising for the purpose of analysis and interpretation of the finnancial information.
Cost accounts are not preserved under Management Accounting. The necessary data from financial statements and cost ledgers are analyzed.
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