1 Introduction to Management Accounting Flashcards
What is management accounting?
Combines accounting, finance and management with the leading edge techniques needed to drive businesses.
- Its the practical science of value creation within organisations in private & public sector
What is the main difference between financial and management accounting?
Financial accounting is used externally and is available in public information
Management accounting is used within an organisation and is usually confidential & available to those in direct need of it
What are the 3 main responsibilities of a management accounting role?
- Costing - selling prices, profitability & inventory valuation
- Planning & Control - budgets/ forecasts
- Decision Making- pricing, product profitability/viability, resource requirements
What is the role of the management accountant?
- Formulation of policy and setting corporate objectives
- Formulation of operational plans
- Acquisition and use of finance
- Improvement of business systems and processes through risk management
- Provision of specific info and analysis on which decisions are based
What are the typical mainstream job titles?
- Chief financial officer
- Treasurer
- Cost Accountant
- Planning Manager
- Financial Controller
What are the main accounting principles?
1 Communication provides insight that is influential - INFLUENCE => driving better decisions about strategy and its execution at all levels
- Information is relevant - RELEVANCE => helping orgs plan for and source the info needed for a strategy
- Impact on value is analysed - ANALYSIS => Simulating different scenarios that demonstrate the cause and effect relationships between inputs and outcomes
- Stewardship - TRUST => managing relationships and resources so that the financial and non-financial assets reputation are protected.
What are the main differences of financial accounting vs management accounting?
Financial:
- Required by law
- Accurate
- More impt to be accurate than timely
- Deals with whole company
- Must be produced annually
- Prepared for diff stakeholders mostly EXTERNAL
Management:
- Optional/orgs don’t have to use
- Info might be approximate
- More important to be timely than accurate
- Produced for any part of org
- Produced when required
- Prepared for management - INTERNAL
What are the possible situations for management accounting function within an organisation?
- Dedicated business partner = part of the business area that they support
- Adviser = management accounting function remains separate but management accountants provide advice on many diff areas.
- Shared service centre = one centralised finance function
- Business process outsourcing = external supplier supplies some or all of the accounting services.
What is data?
raw unprocessed figures that have been collected about an activity or procedure e.g. no. of units made each day
What is information?
Processed data that is now in a form that makes it valuable to the user e.g. % increase in daily production
What are the attributes of good info?
Accurate Complete Cost Beneficial Understandable Relevant Authoritative Timely Easy to use
What are the internal sources of data?
- Accounting system
- HR Records
- Marketing dept
- Production dept
What are the external sources of data?
- Govt statistics
- Financial press (XR’s. interest rates share prices etc)
- Trade publications
- The Internet
What are the 3 levels that organisations are split into?
- Strategic - decisions with long-term future of the organisation
- Managerial/Tactical - decisions concerned with medium-term issues e.g. individual products, customers and staffing
- Operational - decisions concerned with day-to-day activities affecting production/ customer service
What are the the differing accounting information requirements?
a) Time Horizon
b) Breadth covered
c) Level of detail
d) Level of certainty
e) Source of data
f) Type of info
(see page 7)
