Which of the following statements is FALSE? Select one: A. Managerial accounting information includes both historical and estimated data. B. Accounting is an information system that provides essential data about the economic activities of an entity to various users to aid them in making informed judgments and decisions. C. Managerial accounting reports are prepared according to generally accepted accounting principles. D. Since there are few rules to restrict how an organization chooses to arrange its own internal data for decision making, managerial accounting provides ample opportunity for creativity and change.
The Correct Answer and Explanation is:
Correct Answer: C. Managerial accounting reports are prepared according to generally accepted accounting principles.
Explanation:
The false statement is C, because managerial accounting reports are not required to follow generally accepted accounting principles (GAAP).
Managerial accounting focuses on providing information internally to managers within an organization to assist in planning, controlling operations, and decision-making. Unlike financial accounting, which must follow GAAP or other regulatory standards to ensure consistency and comparability for external users (such as investors, creditors, and regulators), managerial accounting is not bound by such regulations. Instead, it emphasizes relevance and usefulness to management.
Because of this flexibility, managerial accounting reports may include non-financial data, forecasts, and segment-specific information, and can be presented in any format that best suits internal decision-making needs. These reports might be prepared on a daily, weekly, or monthly basis, unlike financial statements which are usually prepared quarterly or annually.
Now let’s evaluate the other statements:
- A. Managerial accounting information includes both historical and estimated data.
✅ This is true. Managerial accounting uses past data (historical costs, past sales) as well as estimates and projections (budgets, forecasts) to aid future decisions. - B. Accounting is an information system that provides essential data about the economic activities of an entity to various users to aid them in making informed judgments and decisions.
✅ This is true. This statement accurately reflects the core purpose of accounting. - D. Since there are few rules to restrict how an organization chooses to arrange its own internal data for decision making, managerial accounting provides ample opportunity for creativity and change.
✅ This is true. The absence of strict rules allows for customization in how data is presented and used internally, encouraging innovation in reporting and analysis.
Summary:
Statement C is false because managerial accounting is not governed by GAAP, allowing for greater flexibility and internal focus, unlike financial accounting which must adhere to standard accounting principles for external reporting.
