Chapter 1 Flashcards by Safia Carr

What is the primary purpose of managerial accounting?

Provides economic and financial information for managers and other internal users.

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Who are the primary users of financial accounting reports?

External users: stockholders, creditors, and regulators.

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Who are the primary users of managerial accounting reports?

Internal users: officers and managers.

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What types of reports do financial and managerial accounting produce?

Financial accounting: Financial statements, quarterly and annually.
Managerial accounting: Internal reports, as frequently as needed.

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What is the main difference in the purpose of reports between financial and managerial accounting?

Financial accounting: General-purpose.
Managerial accounting: Special-purpose for specific decisions.

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What is the content of financial accounting reports?

Pertains to business as a whole, highly aggregated, and limited to double-entry accounting and cost data.

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What is the content of managerial accounting reports?

Pertains to subunits of the business, very detailed, and extends beyond double-entry accounting to any relevant data.

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How are financial accounting reports verified?

Audited by CPA.

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How are managerial accounting reports verified?

No independent audits.

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What are the three broad functions of management?

Planning
Directing
Controlling

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What is one aspect of the planning function in management?

Maximize short-term profit and market share.

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What is the directing function in management?

Coordinate diverse activities and human resources.

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What does the controlling function in management involve?

Keeping activities on track and determining whether goals are met.

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True or False: Managerial accountants have a single role within an organization.

False

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True or False: Financial accounting reports are general-purpose and intended for external users.

True

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True or False: Managerial accounting reports are special-purpose and issued as frequently as needed.

True

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What are the classes of manufacturing costs?

Direct materials
Direct labor
Manufacturing overhead

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What are direct materials?

Raw materials that can be physically and directly associated with finished goods.

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What are indirect materials?

Not physically part of finished product
Impractical to trace to finished product due to small cost

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What is direct labor?

Work of factory employees that can be physically and directly associated with converting raw materials into finished goods.

What is indirect labor?

Work of factory employees that has no association with finished product or is impractical to trace costs to goods produced.

What does manufacturing overhead include?

Costs indirectly associated with manufacturing the finished product.

What are product costs?

Direct materials
Direct labor
Manufacturing overhead

How are product costs recorded?

Recorded in ‘inventory’ account and not an expense until goods are sold.

What are period costs?

Charged to expense as incurred and includes all selling and administrative expenses.

What is the formula for calculating the cost of goods manufactured?

Total Manufacturing Costs - (cost of beginning work in process + total manufacturing costs for the current period).

What are the three inventory accounts of a manufacturer?

* Raw Materials Inventory * Work in Process Inventory * Finished Goods Inventory

What does Raw Materials Inventory show?

The cost of raw materials.

What does Work in Process Inventory show?

The cost applicable to units that have been started into production but are only partially completed.

What does Finished Goods Inventory show?

The cost of completed goods on hand.

What does Raw Materials Inventory show?

The cost of raw materials ## Footnote Raw materials are the basic inputs used in the production process.

What is Work in Process Inventory?

The cost applicable to units that have been started into production but are only partially completed ## Footnote This inventory reflects the costs incurred for products that are not yet finished.

What does Finished Goods Inventory represent?

The cost of completed goods on hand ## Footnote This inventory includes all products that are ready for sale.

How many categories of inventory does a merchandising company show on its balance sheet?

One category ## Footnote Merchandising companies typically only need to track finished goods.

What is the purpose of the Cost of Goods Manufactured schedule?

To summarize the costs incurred to manufacture products during a specific period ## Footnote This schedule includes raw materials, labor, and overhead costs.

What significant trend has occurred in the U.S. economy regarding employment?

Over 50% of U.S. workers are now employed by service companies ## Footnote This reflects a shift from manufacturing to service-oriented jobs.

What does the Value Chain refer to?

All business processes associated with providing a product or service ## Footnote It includes activities from production to delivery.

Define Just-In-Time (JIT) Inventory Method.

A system in which goods are manufactured or purchased just in time for sale ## Footnote This method aims to reduce inventory costs.

What is the goal of Total Quality Management (TQM)?

To reduce defects in finished products, aiming for zero defects ## Footnote TQM focuses on continuous improvement in quality.

What does the Theory of Constraints aim to identify?

Constraints that limit a company’s potential profitability ## Footnote It focuses on managing bottlenecks to enhance performance.

What is the function of Enterprise Resource Planning (ERP)?

Software programs designed to manage all major business processes ## Footnote ERP integrates various functions into one complete system.

What does Activity-Based Costing (ABC) do?

Allocates overhead based on use of activities ## Footnote This method results in more accurate product costing.

What does the Balanced Scorecard evaluate?

Operations in an integrated fashion using both financial and non-financial measures ## Footnote It links performance to overall company objectives.

True or False: All employees are expected to act ethically.

True ## Footnote Ethical behavior is a fundamental expectation in business.

What does the Sarbanes-Oxley Act (SOX) clarify?

Management's responsibilities, including certifications by CEO and CFO ## Footnote SOX aims to protect shareholders from accounting errors and fraudulent practices.

What does Corporate Social Responsibility consider?

A company’s efforts to employ sustainable business practices ## Footnote It evaluates performance regarding people, planet, and profit.

Fill in the blank: A company’s efforts to employ sustainable business practices is referred to as _______.

Corporate Social Responsibility ## Footnote This term encompasses a company’s commitment to ethical behavior and sustainability.

What is the Statement of Ethical Professional Practice?

A code of ethical standards developed by the Institute of Management Accountants ## Footnote It serves as a guideline for ethical behavior in management accounting.