Questions: Exercise 18-1 (Algo) Managerial vs. financial accounting LO C1 Indicate whether each decision is most likely to be made using managerial accounting information or financial accounting information. Business Decision 1. Determine whether to lend to a company 2. Determine what products to sell 3. Determine whether to buy a company's stock 4. Evaluate a purchasing department's performance 5. Estimate product cost for a new line of shoes 6. Measure profitability of an individual store 7. Determine location and size for a new plant 8. Prepare financial reports according to GAAP

To determine whether each decision is most likely to be made using managerial accounting information or financial accounting information, we need to understand the primary focus of each type of accounting:

• Managerial Accounting: This type of accounting is primarily used for internal decision-making. It focuses on providing information to managers within the organization to assist in planning, controlling, and decision-making. It is more detailed and often includes forecasts and budgets.

• Financial Accounting: This type of accounting is primarily used for external reporting. It focuses on providing financial information to external parties such as investors, creditors, and regulatory agencies. It follows standardized guidelines like GAAP (Generally Accepted Accounting Principles).

Now, let's categorize each decision:

1. Determine whether to lend to a company: This decision is most likely made using financial accounting information. Lenders typically rely on financial statements prepared according to GAAP to assess the creditworthiness of a company.

2. Determine what products to sell: This decision is most likely made using managerial accounting information. Managers use detailed internal reports, such as product profitability analyses, to decide which products to focus on.

3. Determine whether to buy a company's stock: This decision is most likely made using financial accounting information. Investors use financial statements to evaluate the financial health and performance of a company before purchasing stock.

4. Evaluate a purchasing department's performance: This decision is most likely made using managerial accounting information. Internal performance evaluations often rely on detailed reports and metrics specific to the department.

5. Estimate product cost for a new line of shoes: This decision is most likely made using managerial accounting information. Cost estimation for new products involves detailed internal analysis and forecasting.

6. Measure profitability of an individual store: This decision is most likely made using managerial accounting information. Managers use internal reports to assess the performance of specific business units or locations.

7. Determine location and size for a new plant: This decision is most likely made using managerial accounting information. It involves strategic planning and analysis of internal data, such as cost-benefit analyses and forecasts.

8. Prepare financial reports according to GAAP: This task is most likely associated with financial accounting information. Preparing reports according to GAAP is a key function of financial accounting for external reporting purposes.