Management Accounting Flashcards
what are the two types of accounting?
financial and management
both overlapping terms of their main purpose (accounting) but their focus is difference they serve different user needs
what is accounting?
measuring, recording and communicating financial information
allows managers to monitor, plan and control activities of the business
who are the main users of accouting?
customers, competitors, employees, government, community, investment analysis, suppliers, lenders, managers and shareholders
what is fincianical accounting?
keeps track of a company’s financial transactions
- Using standardized guidelines, the transactions are recorded, summarized, and presented in a financial report or financial statement such as an income statement or a balance sheet
- statuary accounts
what is meant by statuary accounts in fincanial accouting?
they have to be produced and shown to the public
what is meat by stewardship in accounting?
the directors / managers prepare finical reports in order to communicate back / for the purpose of shareholders
(the people who own it don’t run it)
what is financial accounting governed by?
Companies Acts (1985, 2006) and international accounting standards (IAS)
no real flexibility in how you conduct it
what is the purpose of financial accounting?
‘to supply information on which decision can be based’
- info that is needed in order to make sound economic decisions
- provide information to the companies external users (tax, investors and creditors)
what is financial accounting based on?
past information
financial results that the company has already achieved
what are the important attributions of financial accouting?
- relevant
- timely
- objective
- unbiased
- comparable
- faithfully represented
auditors can come in and do the accounts to produce a faithful view of company
what does financial accounting report on?
profitability and effcnecy of the business
results of an entire business, but not the systems in which are used to make such profit just the outcome
what is the reporting focus of FA?
orientated toward the creation of financial statements, which are distributed within and outside of the company
when is FA done?
FA requires that financial statements be done following the end of an accounting period
what does FA do in terms of valuation?
addresses proper valuation of assets and liabilities,
what is management accounting?
the provision of information to help management
process of analysing business costs and operations to prepare internal financial report, records, and account to aid managers decison making processes
how does MA helps managers?
helps them to:
- formulate policy
- plan and control activities that are occurring
- make decisions through information gathered
- help performance improve, knowing will help
- remain efficient, collect info on how much each department has spent
- safeguard assets, protect and not waste what they have and not have
what three activities does MA help managers do?
- planning
- control
- decision making
what does MA report on?
more detailed level such as profits by product product line customer and geographic region
what is the difference between MA and FA in terms of efficiency?
MA reports on specifically what is causing problems within company and how they could be fixed
FA profitability
why is FA more objective than MA?
MA frequently deals with estimates, rather than proven and verifiable facts
who does MA report to?
internal users
operational reports which are only distributed within a company
are there any standards involved with MA?
no
how is MA linked to bottleneck operations?
in that operations maybe already doing full capacity so hard to increase, MA tries to identify bottleneck and resolve them
what time period is MA?
can be past and future as may address budgets and forecasts and so can have a future orientation
is MA done very accounting period?
may issue reports much more frequently, since the information it provides is of most relevance if managers can see it right away
does MA value assets and liabilities?
no it only deals with their productivity
what is the framework for managerial planning, decison making and control?
1) identify objetives (plan)
2) search for alternative courses of action (plan)
3) gather data about alternatives (plan)
4) elect courses of action (decision making)
5) implement decision (decision making )
6) compare actual and planned outcomes (control)
7) reposed to divergences from plan (control)
what is involved with planning (1-3) MA
- establish aims and objectives for suture directions of business (the what)
- develop strategies for business ( the how)
- produce detailed plans and targets (budgets)
- timing is vital
what is involved with decison making (4-5) MA
Pricing - standard products and special orders / quantity and payment orders
evaluation of alternatives - make or buy (insource vs outsource) / development of new products / discontinuation of existing products
allocation of resources - establish priorities for current expenditure (more advertising and less training?) / allocate scarce resources
how can managers reposed to divergences?
2 possibilities in MA
- take corrective action to get actual outcomes to conform plans
- modify unrealistic plans
why can managers not just use fincanical accounting?
it does not go into enough detail, needs to be broken down into profit per sector etc
