Management accounting Flashcards
Why do I need to need to know about costing in managmenet accounting ? p1
PED
- Purpose of internal reporting/ providing accurate info to management
- different costs & revenue reporting different responsibility centers
- ethical principles in management accounting
What IS accounting? P2
- System - tracking money
- insufficient funds & no profit - bankruptcy
- recording , preparing & interpreting business transactions
- primary source of info - owners & managers - plan & control activities / decision making
What is financial accounting ?
- Monetary amounts - division into categories/ recorded in accounting records
- presentation of financial info
Why must the presentation of finanical information be consistent?
- performance assessed over time
What are the two main financial statements?
- statement of profit/ loss
- statement of financial position
What is management accounting concerned with?
info for management - planning, control, & decision making
How can management accounting help with planning?
P4
- short term/ long term budgets & forecasts
- highlights:
shortage of resources - bottlenecks in productions
- limitation effect
How does management accounting help with controlling expenditure?
- comparison - actual results v budgeted plans
How does management accounting help with decision making ? P5
- costs of product /services = effective sales prices
- profitability & demand of products = maximization of profits
- return on capital equipment - info needed on costs incurred & savings generated
What tasks my management accountants undertake? - P5
AREA O
A - ascertain costs
R- reporting system
E- establishing budgets
A - analysing savings / inefficiencies
O - operating specific costing systems
What can management accounting also be referred to as ?
Cost accounting
Why would management accounting be referred to as costs accounting? P6
- Question - how much does it costs to ?
What type of data does management accounting work with & why? P6
- Historical data
- estimates/ forecasts of future data
How can management accountants present their information? p6
- Variety of types
- number of different formats
- key - accurate , useful, relevant & timely
- no set format - legislation
When would management accountants need to provide info to external stakeholders? P7
MEB
Mortgage - Freehold of a factory future revenue & costs
External accountant - tax advise - future projections and budgets
Bank - loan for product - fuiture revenue & costs - profitable products / timing of cahs flow - loan repayments
How must care be taken when producing management information? P8
- Not misstated
- estimations = reasonable & realistic assumptions
- professional competence - making estimates/ preparation of forecasts & budgets
What roles would extend costs accounting into management accounting?
- preparing budgets, forecasts, other control data
- creation reporting system = corrective action
- info for decision making .e.g. pricing
What is the result of artificially increasing profit? P8
- forecasts & budgets appear > actual results
- financial acking not given
- increased risk of making loss
- unrelistic targets - no bonus achieved
- loan repayment issues
What two things can artificfically increasing profits result from ?
- Overstating revenue
- Understating costs
What is the result of aritifically decreasing profits? P8
- Financial backing not given
- missed opportunities - expansion
- Easily paid bonuses
- higher costs to departments - inaccurate absorption rate
Why must care be taken when selecting an inventory valuation method ? - P9
- neither artificially increased
- nor suppressed to suit needs of those responsible
What can profit manipulation from incorrect inventory valuation lead to ?
Financial backing - no most appropraite projects
Borrowing underserved - deliberate profit manipulation
increased risk to jobs - poor management decisions from incorrect profit projections
What is the purpose of the code of ethics?
- basis for ethical codes
- accountancy bodies : AAT , ICAEW , ACCA, and CIMA
What approach does the code of ethics adopt?
Pinciples - based approach
What should the role of management accountants be in accordance with the code of ethics?
- Not just - satisfy individual client/employer need
- public interests
- compliance - fundamental ethical requirements of IFAC code
What are the five key principles of the code of ethicsfor professional accountants?
- Integrity
- Objectivity
- Professional competence and due care
- confidentiality
- professional behaviour
What is integrity ?
Straightforwarrd and honest - professional work
What is objectivity ?
bias , conflict of inteest , undue influence of others
What is professional competence and due care?
- professional knowledge and skill
- competent professional service
- practice, legislation , and techniques development
What is confidentiality ?
- respect - info acquired from professional and business relationships
- non disclosure - unless legal / professional right/ duty
What is professional behaviour?
non unprofessional behaviour - laws and regulations
What can threats to compliance with the fundamental principles be?
- General in nature
- relate to specific circumstances of an appointment
What do the 5 general categories of threats to the principles include?
Self interest threat
Self review threat
Advocacy threat
The familiarity/ trust threat
Intimidation threat
What is the self interest threat to compilance?
- financial/ other self interests conflict
- direct/ indirect interest
- fear - loss of engagement/ employement
What is the self review threar?
- product or judgement - member or firm
- review your own work?
What is the advocacy threat?
- advocate for/ against
- adversarial proceedings/ situation
- individual circumstances
- One side compatible - truthful and accurate
The familiarity or trust threat?
- knowledge
- relationship
- judgement
What is the intimidation threat to compilance?
- Threat
- dominating personality
- other pressures
- actual or feared pressure
What is a cost object?
- Anything - cost ascertained to
- e.g. cost units , cost centers
What is a cost unit? - P9
- single unit of output - costs charged
- products manufactured - cars , telephones
- Services provided - attendance to swimming pool
What are costs centres ? - P10
- any part of organisation - separate attribution
What can costs centres be ? - P10
- identified with/ allocated to costs centre
- e.g. location , function (department) , activity , item of equipment
What are costs centre managers in control of ?
costs collected - monitor and control costs
decisions - costs only - may be targets
