Chapter 1: Intro to Managerial Accounting Flashcards
Financial Accounting
The discipline of accounting concerned with providing information to shareholders, creditors, and others OUTSIDE the organization.
Managerial Accounting
The discipline of accounting concerned with providing information to managers for use in planning, directing and motivating, and controlling WITHIN the organization. Historical and future looking
Broadly speaking, there are three types of organizations
Service, Merchandising, and manufacturing
Service firms include
Great canadian oil change, Sun life insurance, doctor clinics, and advertising agency
Merchandising firms
Largely retail and wholesale outlets that buy goods from suppliers and resell to customers
Manufacturing firms
Engage in the production and sale of different types of products, ranging from small consumer goods (like gum) to large products (such as ships and aircrafts)
Most organizations have
1) A mission (purpose)
2) A vision (long-term goal)
3) Strategies for achieving the mission and vision
Strategy
The general direction in which an organization plans to move to achieve its goals and objectives.
Guided by the company’s vision, mission, and strategy, managers carry out the three main activities of planning, implementation (implementing), and control
Planning
Selecting a course of action and specifying how the action will be implemented.
First step of planning
Identifying alternatives and then selecting the one that does the best job of furthering the organizations objectives
Budgets
Detailed plans for the future, usually expressed in formal quantitative (number) terms.
Planned annually, quarterly, or even monthly
Implementation or execution
Putting the plans into effect.
Involves carrying out day-to-day activities, making short-term and long-term decisions, organizing and allocating resources, and managing people by directing and motivating them
Control or monitoring
The process of instituting procedures and then obtaining feedback to ensure that all parts of the organization are functioning effectively and moving toward overall company goals.
Largely achieved through internal management reports produce on a frequent basis; these reports provide feedback
Feedback
A mechanism that signals whether operations (and performance) are on track; usually achieved through reviewing periodic performance reports.
Performance report
A detailed report comparing budgeted results with actual results.
How are managerial and financial different?
Users: Financial = external, Management = internal
Time horizon: Financial = historical perspective, management = historical and future perspective
Financial: Emphasis on verifiability, management = emphasis on relevance
Financial: Emphasis on precision, Management: emphasis on timeliness
Unit of analysis: financial = entire organization, management = individual units or the entire organization
Regulation: Financial = ASPE or IFRS, management = no prescribed
Requirement: Financial = MANDATORY, management = optional
Relevant
Appropriate for the decision at hand
Segments (managerial accounting)
Parts of an organization that can be evaluated independently of other parts and about which the manager seeks financial data. Examples are a product line, a sales territory, a division, or a department.
No need for ASPE or IFRS in managerial accounting, however, what could be considered a constraint?
The expected benefits from using the information should outweigh the costs of collecting, analyzing, and summarizing the data
Management cycle
1) Planning: which includes setting objectives and outlining how to attain these objectives
2) Implementation: which involves putting the plans into effect
3) Control: provides required periodic feedback to monitor the organization’s progress toward achieving its stated objectives
Increased relevance of managerial accounting
Greatly increased in last 4 decades, competitive boundaries expanded due to globalization, higher scrutiny of companies by a variety of stakeholders, rapid tech advances significantly impact business practices and their outputs
Globalization positives
- Offers greater opportunities (networking, access to new markets)
- Large variety of choices for customers, higher quality, lower prices
Why globalization (these factors led to globalization)
Improvements in global communication and transportation systems
- increasing sophistication in international trade markets
- Reduction in trade barriers achieved through bilateral, trinational, and multinational free trade agreements
Implications of globalization
1) Organizations must find new ways of conducting business: new strategies, new management practices, and more sophisticated managerial accounting systems
2) Organizations must conduct their affairs in a responsible manner
Lean business model
A business model that focuses on continuous improvement by eliminating waste in an organization.
In order to eliminate waste, companies must adopt and implement one or more management practices that focus on different aspects of the ____________
lean business model
Examples of said practices from #26
Just-in-time
Total quality management
Process reengineering
Theory of constraints
Just-in-time (JIT)
Just in time
A production and inventory control system in which materials are purchased and units produced only as needed to meet actual customer demand.
Results of JIT
1) A substantial reduction in ordering and warehousing costs and in waste due to obsolescence, pilferage, and other reasons
2) Much more effective operations
Zero defects
Part of JIT
A policy of striving for no defects or as few as possible.
Total quality management (TQM)
An approach to continuous improvement that focuses on customers and using teams of front-line workers to systematically identify and solve problems.
Two major characteristics of TQM
1) Focus on serving customers
2) Systematic problem solving using teams made up of front-line workers
Benchmarking
A study of organizations that are among the best in the world at performing a particular task.
Plan-Do-Check-Act (PDCA) cycle
plan do check act cycle
AKA deming wheel
A systematic approach to continuous improvement that applies the scientific method to problem solving
Phases
1) Plan: problem-solving team analyzes data to identify possible causes of the problem and then proposes a solution
2) Do: team conducts an experiment
3) Check: Analyzes the results
4) Act: If the results are favourable, they implement that plan. If results are not favourable (unfavourable), team goes back to original data and tries again
Business process
A series of steps followed to carry out a task in a business.
examples: Making a Canadian bacon pizza at a place
Process reengineering
An approach to improvement that involves completely redesigning business processes in order to eliminate unnecessary steps, reduce errors, and reduce costs.
Focusses on simplification and elimination of wasted effort
Non-value-added activities
non value added activities
Activities that consume resources or take time but do not add value for which customers are willing to pay.
Example: needing to move stuff all around the factory, just reorganize the layout to reduce moving
Negatives: Layoffs (job loss occurs when you are too efficient)
Constraint
A hurdle (or obstacle) that prevents people from getting more of what they want.
Theory of constraints (TOC)
A management approach that emphasizes the importance of managing constraints.
Looking at solutions to fix constraints
Example: gas station is too small, and people need to wait. You can either get more pumps, increase pump speed, introduce fast checkout
Corporate governance
The system by which an organization is directed and controlled.
SHould encourage the board of directors and top management to pursue objectives that are in the interest of the company’s stakeholders
Are managerial and financial reports independent of each other??
NOOOOOOOOOO
The reports can feed into each other
