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Chapter 1
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Introduction to Managerial Accounting
So far – financial accounting For whom are financial accounting reports prepared primarily? Managerial – internal users.
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Definition of Managerial Accounting
A field of accounting that provides economic and financial information for managers and other internal users. Also called Management Accounting
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The activities of managerial accounting
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Managerial Accounting Activities
Explain manufacturing and non manufacturing costs and how they are reported Compute cost of providing a service or manufacturing a product. Determine behavior of costs and expenses as activity changes.
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Assist management in profit planning and formalizing these plans in the form of budgets.
Help to control costs by comparing actual results with planned objectives and standard costs. Accumulate and present data for making decisions.
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Distinguishing Features of Managerial Accounting
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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
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More responsible for strategic cost management
Teams with people from production, marketing, engineering, etc. Aid in making critical decisions
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Distinguish between financial accounting management accounting.
and management accounting.
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Comparing Managerial and Financial Accounting
Similarities Differences
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Similarities Both deal with economic events of a business
( 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
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Differences
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Primary Users Financial Management Investors
Creditors Government authorities Management Internal managers of the business
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Purpose of Information
Financial Help investors, creditors, and others make investment, credit, and other decisions Management Help managers plan and control business operations
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Focus and Time Dimension
Financial Reliability, objectivity, and focus on the past Management Relevance
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Type of Report Management Financial
Internal reports not restricted by GAAP; determined by cost-benefit analysis Financial Financial statements restricted by GAAP Cost benefit analysis Weighing costs against benefits But must always consider qualitative factors as well
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Verification Financial Management Annual independent audit by CPAs
No independent audit
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Scope of Information Management Financial
Detailed reports on parts of the company Financial Summary reports primarily on the company as a whole
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Behavioral Implications
Management Concern about how reports will affect employees behavior Financial Concern about adequacy of disclosure
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Management Functions Management’s activities and responsibilities can be classified into the following three broad functions: Planning Directing Controlling
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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
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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
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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
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Good decision making is the outcome of good judgment in planning, directing, and controlling.
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Planning and Control Cycle
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Begin Decision Making Formulating Long-and Short-Term Plans (Planning)
Implementing the Plans (Directing and Motivating) Begin Decision Making Comparing Actual to Planned Performance (Controlling) Measuring Performance (Controlling)
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Questions
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True/False Questions 1. Although financial and managerial accounting differ in many ways, they are similar in that both rely on the same underlying financial data.
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Answer: True
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Thank you
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