©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 1 Introduction to Managerial Accounting

Accounting Information Systems – Contemporary View TRADITIONAL FINANCIAL Accounting Information NONFINANCIAL Information Other Quantitative Information: Percentage of Defects # Customer Complaints Warranty Claims Inventory Units Budgeted Hours Financial Information: Assets Liabilities Revenues Gross Margin Operating Expenses Qualitative Information: Customer & Employee Satisfaction Product & Service Quality Reputation

Users of Financial Information

Types of Information Needed By Internal Users Internal users, particularly management, need more flexible and detailed information that will allow them to perform: Planning Operating Controlling

Functional Areas of Management Human Resources Marketing Finance Operations and Production Managers are found in all functional areas of an organization.

Different Informational Needs of Users Due to the varying needs of internal users, managerial accounting is more than financial accounting. FLEXIBLE

The Information Needs of Internal Users Marketing, operations and production, finance, and human resource managers Timely, detailed information on sales and expenses, product costs, budget data, and measures of performance. Cost reports, budgets, and other internal documents. USER: Accounting Information Needed: SOURCE:

The Information Needs of External Users (1) Shareholders & Creditors (2) Government Agencies (3) Customers and Suppliers (1) Sales, net income, EPS (2) Taxable income, assets (3) Order status, shipping dates, inventory levels (1) Annual reports (2) Tax returns (3) Restricted databases USER: Accounting Information Needed: SOURCE:

The Role of Managerial Accountants Managerial accountants have become decision-support specialists who see their role as interpreting information, putting it into a useful format for other managers, and facilitating management decision making.

Decision Making The process of identifying different courses of action and selecting one appropriate to a given situation. An effective decision making model is one that focuses on relevant factors that differ between alternatives.

Relevant Costs For Example: Buying a car with a CD changer versus buying a car without one. These are avoidable or can be eliminated by choosing one alternative over another.

Sunk Costs For Example: Watching a horrible rental movie that is unbearable during its first 20 minutes. The rental fee is a sunk cost. You can either decide to stick it out or use the time to do something more fun. These are costs that have already been incurred. They cannot be avoided and are irrelevant.

Opportunity Costs For Example: Choosing to go to college or work full-time. The opportunity cost is the higher salary you will received as a college graduate. (In general, these costs are hard to quantify.) These are benefits forgone by choosing one alternative over another. They are relevant.

Ethics and Decision Making In today’s business environment, companies have to be aware not only of the economic impact of their decisions, but also of their ethical impact. Good Ends? Bad Ends? Information being used for? To falsify records?? To ignore product safety?? To exceed government limits??

8/17/2015 Sarbanes-Oxley Act of 2002 U.S. Congress passed the Sarbanes–Oxley Act in Section 404 of the act requires management to assess whether internal controls over financial reporting (ICFR) are effective. The company’s external auditor is required to audit ICFR and assess whether those controls are effective in preventing and detecting financial misstatements.

End of Chapter 1