Managerial accounting is not bound by generally accepted accounting principles (GAAP) but clearly is influenced by GAAP. How do budgets and the budgeting process demonstrate connections to GAAP?
What will be an ideal response?
Answers will vary
A company would want to make comparisons between actual results and the budget. These comparisons might be made by comparing the end-of-period financial statements to the pro forma financial statements. Therefore, the pro forma financial statements would be prepared in the same format as the "real" financial statements at the end of the period. The pro forma financial statements in effect would comply with GAAP. Items would be treated on the budget as they are in the end-of-period financial statements. For example, research and development costs would be treated as an expense in the budget because R&D is an expense in the GAAP financial statements.
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What will be an ideal response?
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What will be an ideal response?