1. Accounting Principles, Ninth Edition
Chapter 19
Managerial
Accounting
Accounting Principles, Ninth Edition

2. Study Objectives
Explain the distinguishing features of managerial accounting.
Identify the three broad functions of management.
Define the three classes of manufacturing costs.
Distinguish between product and period costs.
Explain the difference between a merchandising and a manufacturing income statement.
Indicate how cost of goods manufactured is determined.
Explain the difference between a merchandising and a manufacturing balance sheet.
Identify trends in managerial accounting.
1. On the topic, “Challenges Facing Financial Accounting,” what did the AICPA Special Committee on Financial Reporting suggest should be included in future financial statements?
Non-financial Measurements (customer satisfaction indexes, backlog information, and reject rates on goods purchases).
Forward-looking Information
Soft Assets (a company’s know-how, market dominance, marketing setup, well-trained employees, and brand image).
Timeliness (no real time financial information)

3. Managerial Accounting Basics
Definition of Managerial Accounting
A field of accounting that provides economic and financial information for managers and other internal users.
Also called Management Accounting

4. Managerial Accounting Basics
Managerial Accounting Activities
Explain manufacturing and nonmanufacturing costs and how they are reported. (Chapter 19)
Compute cost of providing a service or manufacturing a product. (Chapters 20 and 21)
Determine behavior of costs and expenses as activity changes. (Chapter 22)

5. Managerial Accounting Basics
Managerial Accounting Activities (continued)
Assist management in profit planning and formalizing these plans in the form of budgets. (Chapter 23)
Help to control costs by comparing actual results with planned objectives and standard costs. (Chapters 24 and 25)
Accumulate and present data for making decisions. (Chapter 26)

6. Managerial Accounting Basics
Distinguishing Features
Applies to all types of business -
Service, Merchandising, and Manufacturing
Applies to all forms of businesses –
Proprietorships, Partnerships, and Corporations
Applies to not-for-profit and profit oriented companies

7. Managerial Accounting Basics
Distinguishing Features: Continued
More responsible for strategic cost management
Teams with people from production, marketing, engineering, etc.
Aid in making critical decisions

8. Comparing Managerial and Financial Accounting
Similarities
Both deal with economic events of a business –
Thus, interests overlap
Both require that economic events be
quantified and communicated to
interested parties –
Determining unit cost is part of
managerial accounting,
Reporting cost of goods manufactured
is a part of financial accounting
SO 1 Explain the distinguishing features of managerial accounting.

9. Comparing Managerial and Financial Accounting
Differences
Illustration 19-1
SO 1 Explain the distinguishing features of managerial accounting.

10. Comparing Managerial and Financial Accounting
Review Question
Managerial accounting:
a. Pertains to the entity as a whole and is highly aggregated.
b. Places emphasis on special-purpose information.
c. Is limited to cost data.
d. Is governed by generally accepted accounting principles.
SO 1 Explain the distinguishing features of managerial accounting.

11. SO 2 Identify the 3 broad functions of management.
Management Functions
Management Functions
Management’s activities and responsibilities can be classified into the following three broad functions:
Planning
Directing
Controlling
SO 2 Identify the 3 broad functions of management.

12. SO 2 Identify the 3 broad functions of management.
Management Functions
Planning
Look ahead and establish objectives such as –
Maximize short-term profit
Commit to environmental protection
Key Objective: Add value to the business
Value measured by trading price of stock
and by potential selling price of the company
SO 2 Identify the 3 broad functions of management.

13. SO 2 Identify the 3 broad functions of management.
Management Functions
Directing
Coordinate diverse activities and human resources
Implement planned objectives
Provide incentives to motivate employees
Hire and train employees including
executives, managers, and supervisors
Produce smooth-running operation
SO 2 Identify the 3 broad functions of management.

14. SO 2 Identify the 3 broad functions of management.
Management Functions
Controlling
Keep activities on track
Determine whether goals are met
Decide changes needed to get back on track
May use an informal or formal system of evaluations
Good decision making is the outcome of good judgment in planning, directing, and controlling.
SO 2 Identify the 3 broad functions of management.

15. Review Question Management Functions
The management of an organization performs several broad functions. They are:
a. Planning, directing, and selling.
b. Directing, manufacturing, and controlling.
c. Planning, manufacturing, and controlling.
d. Planning, directing, and controlling.
SO 2 Identify the 3 broad functions of management.

16. Good Ethics – Good Business
Business Ethics
Business scandals caused massive investment losses and employee layoffs.
Corporate fraud has increased 13% in last 5 years.
Employee fraud – 60% of all fraud
Intentional misstatement of financial reports
Aka financial reporting fraud
Most costly to companies
SO 2 Identify the 3 broad functions of management.

17. Good Ethics – Good Business
Creating Proper Incentives
Systems to monitor and evaluate employees may produce incentives for unethical actions.
Employees may feel that they must succeed no matter what.
Ineffective and unrealistic controls may result in declining product quality.
SO 2 Identify the 3 broad functions of management.

18. Good Ethics – Good Business
Code of Ethical Standards
Sarbanes-Oxley Act of 2002
Clarifies management’s responsibilities.
Certifications by CEO and CFO -
fairness of financial statements and
adequacy of internal control
Selection criteria for Board of Directors and Audit Committee
Substantially increased penalties for misconduct
IMA Statement of Ethical Professional Practices
SO 2 Identify the 3 broad functions of management.