Chapter 1: Managerial Accounting Flashcards
What is managerial accounting?
A field of accounting that provides economic and financial information for managers and other internal users.
In the past, managerial accountants were primarily engaged in cost accounting: collecting and reporting costs to management. That role has now changed significantly, how?
First, the manufacturing environment has become more automated, methods used to determine the amounts and types of costs in a product have changed. Second, today’s managerial accountants are responsible for strategic cost management; they help management evaluate how well the company is employing its resources. As a result, managerial accountants now serve as team members alongside personnel from production, marketing, and engineering.
Which type of accounting uses determining, and which uses reporting?
Determining the unit cost of manufacturing a product is part of managerial accounting. Reporting the total cost of goods manufactured and sold is part of financial accounting.
Primary Users of reports for financial accounting is:
External users: shareholders, creditors, and regulators
Primary users of reports for managerial accounting is:
Internal users: officers and managers
Type and frequency of reports for financial accounting:
Financial statements
Quarterly and annually
Type and frequency of reports for managerial accounting:
Internal reports
As frequently as needed
Purpose of financial accounting reports:
General-purpose
Purpose of managerial accounting reports:
Special-purpose for specific decisions
Content of financial accounting reports:
- Pertains to business as a whole
- Highly aggregated (condensed)
- Limited to double-entry accounting and cost data
- Generally accepted accounting principles
Content of managerial accounting reports:
- Pertains to subunits of the business
- Very detailed
- Extends beyond double-entry accounting to any relevant data
- Standard is relevance to decisions
Verification process for financial accounting:
Audited by CPA (chartered professional accountant)
Verification process for managerial accounting:
No independent audits
What roles do managerial accountants play?
- Determine product costs.
- are held responsible for evaluating how well the company is employing its resources.
- when the company makes critical strategic decisions, managerial accountants serve as team members alongside personnel from production, marketing, and engineering.
Managers’ activities and responsibilities can be classified into three broad functions:
- Planning
- Directing
- Controlling
What is planning?
- requires management to look ahead and to establish objectives.
- maximizing short-term profits and market share, maintaining a commitment to environmental protection, and contributing to social programs
- add value to the business under its control (value is usually measured by the trading price of the company’s shares and by the potential selling price of the company.)
What is directing?
- involves coordinating a company’s diverse activities and human resources to produce a smoothly running operation.
- This function relates to implementing planned objectives and providing necessary incentives to motivate employees.
- Directing also involves selecting executives, appointing managers and supervisors, and hiring and training employees.
EXAMPLES:
Dare Foods must coordinate their purchasing, manufacturing, warehousing, and selling.
Air Canada must coordinate their scheduling, sales, service, and acquisitions of equipment and supplies.
What is controlling?
- the process of keeping the company’s activities on track.
- In controlling operations, managers determine whether planned goals are being achieved.
- When there are deviations from target objectives, managers must decide what changes are needed to get back on track.
EXAMPLE:
Scandals such as the Volkswagen emissions scandal attest to the fact that companies must have adequate controls to ensure that the company develops and distributes accurate information.
How do managers achieve control in a small business?
A smart manager in a small operation can make personal observations, ask good questions, and know how to evaluate the answers
How do managers achieve control in a large business?
Large businesses typically use a formal system of evaluation.
These systems include such features as:
- budgets
- responsibility centres,
- and performance evaluation reports
all of which are features of managerial accounting.
What is decision-making?
Decision-making is not a separate management function.
Rather, it is the outcome of the exercise of good judgement in planning, directing, and controlling.
Why do companies use organization charts?
In order to assist in carrying out management functions, most companies prepare organization charts that show the interrelationships of activities and the delegation of authority and responsibility within the company.
