Week 1 Flashcards
Basics of Management Accounting and differences between Financial Accounting
What is the primary purpose of Management Accounting?
Providing information to managers of an organization to enable them better to direct and control its operations.
What is the significance of knowing costs in Management Accounting?
To set a selling price and ensure the organization doesn’t run out of money.
What is the focus of cost/benefit analysis in Management Accounting?
Determining whether an organization should start a new project.
What are the key components of Module Content in Management Accounting?
- Costing (Marginal, Absorption, Activity-based)
- Break-even analysis
- Budgeting
- Variance Analysis
- Investment appraisal (Payback, NPV, IRR)
What does Marginal costing focus on?
Variable costs.
What does Absorption costing include?
Fixed costs.
What is Activity Based Costing?
A more recent approach to costing.
What is break-even analysis?
The point at which sales revenues exactly equal a business’s costs.
What does budgeting indicate for a business?
Whether the business expects to make a profit and how much.
What is the purpose of variance analysis?
To calculate and investigate the difference between figures in the budget and the actual figures achieved.
What is investment appraisal?
Investment appraisal evaluates whether a project or investment is worth pursuing by comparing the expected profits to the costs.
What is the difference between variance analysis and investment appraisal?
Investment Appraisal is done before making an investment. It helps businesses decide whether a project or investment is financially worthwhile by comparing expected costs and benefits.
Variance Analysis is done after a budget or investment has been implemented. It compares the actual financial performance to the budgeted or expected performance to see if there are any differences (variances).
Methods of investment appraisal?
Payback Period, Net Present Value (NPV), and Internal Rate of Return (IRR).
What does NPV stand for in investment appraisal?
Net Present Value.
What is the definition of Payback in investment appraisal?
The time it takes for a company to recoup its investment.
What does IRR represent?
The internal rate of return, the interest rate at which the NPV of a project is zero.
What is essential for success in this module?
- Extensive background reading
- Thorough practice of calculative techniques
- Development of essay writing techniques
Fill in the blank: A financial plan or projection for the future is called a _______.
Budget.
True or False: Variance means ‘difference’.
True.
What does management accounting provide information for?
Managers (internal) of an organisation
Management accounting focuses on helping managers direct and control operations.
Who benefits from financial accounting?
Stockholders, creditors, and others (external)
Financial accounting is aimed at providing information to those outside the organization.
What are the three main functions of management accounting?
- Planning (long-term and short-term)
- Directing and Motivating (implementing the plan)
- Controlling (record and measure actual performance)
These functions help in effective management and decision-making.
Who are the users of accounting information?
- Shareholders
- Investors
- Managers
- Employees
- Trade unions
- Government
- Tax authorities
- Local community
- Customers
- Suppliers
- Lenders
Various stakeholders rely on accounting information for different purposes.
What is the time period focus of management accounting?
Future
Management accounting emphasizes future planning and decision-making.
