Chapter 18. Managerial Accounting Concepts and Principles Dates Flashcards
What is managerial accounting?
An activity that provides financial and non-financial information to an organization’s managers and other internal decision makers.
What is the main purpose of the financial accounting system?
To prepare general-purpose financial statements.
What is the main purpose of both managerial and financial accounting?
To provide useful information to decision makers.
How is information provided to decision makers?
By collecting, managing, and reporting information in demand by their users.
What practice do both areas of accounting share?
Reporting monetary information.
What practice does managerial accounting usually report?
Nonmonetary.
What seven characteristics differ in financial and managerial accounting?
Users and decision makers, purpose of information, flexibility of practice, timeliness of information, time dimension, focus of information and nature of information.
What are the seven characteristics of financial accounting?
- Investors, creditors, and other external to the organization.
- Assist external users in making investment, credit, and other decisions.
- Structured and often controlled by GAAP
- Often available only after an audit is complete
- Focus on historical information with some predictions
- Emphasis on whole organization
- Monetary information
What are the seven characteristics of managerial accounting?
- Managers, employees, and decision makers internal to the organization.
- Assist managers in making planning and control decisions
- Relatively flexible (no GAAP constraints)
- Available quickly without the need to wait for an audit
- Emphasis on an organization’s projects, processes, and subdivisions
- Mostly monetary; but also nonmonetary information
Who primarily receives managerial accounting information?
Internal users who are responsible for making and implementing decisions about a company’s business activities.
Can managers decide what information they want and how they want it reported?
Yes.
Can managers quickly obtain
accounting information?
Yes.
Who needs managerial accounting reports and what needs to be included?
Middle-level and lower-level managers need specific activities, projects, and subdivisions for which they are responsible.
How is a cost classified at a basic level
Fixed or variable.
What is a fixed cost?
Does not change with changes in the volume of activity (within a range of activity known as an activity’s relevant range).
Example: straight-line depreciation on equipment
What is a variable cost?
Changes in proportion to changes in the volume of activity.
Sales commissions computed as a percent of sales revenue are variable costs.
What is a cost object?
A cost is often traced, which is a product, process, department, or customer to which costs are assigned.
What are direct costs?
Those traceable to a single cost object. For example, if a product is a cost object, its material and labor costs are usually directly traceable. Direct costs for a bicycle, when it is the cost object, include raw materials such as sheels, brakes, chains, and wages and benefits of employees who work directly on making bikes
Example: cost of shoes and shoe department manager’s salary.
What is an indirect cost?
Those that cannot be easily and cost-beneficially traced to a single cost object,
Example: plant manager’s salary, rent on the manufacturing facility, and electricity cost for the plant.
How can a cost be classified?
By relevance by identifying it as either a sunk cost or an out-of-pocket cost.
What is a sunk cost?
It has already been incurred and cannot be avoided or changed. It is irrelevant to future decisions.
Example: the cost of a company’s office equipment previously purchased.
What is an out-of-pocket cost?
Requires a future outlay of cash and is relevant for decision making. Future purchases of equipment involve out-of-pocket costs. A discussion of relevant costs must also consider opportunity costs.
