Chapter 15 Acc Text Cases

8/8/2019 Chapter 15 Acc Text Cases

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Chapter

McGraw-Hill/Irwin Copyright 2007 by The McGraw-Hill Companies, Inc. All rights reserved.

The Nature of

Management

Accounting

15


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15-2

Financial Accounting

y Focuses on preparation of FS required

by GAAP.

y Prepared foruse by external users.

y Provides an overallpicture ofan entitys

financial condition andresults ofactivities.


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Management accounting

Process thatprovides info used by managers

for:

Planning,implementing,and controlling.

Applies to all organizations.

y Management needs moredetailedinfo.

y

Accounting systems provide operatinginfoneeded foroperatingdecisions.

y Managers areinterestedin summaries.

y In general, managementaccountingis summary

information.


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CertifiedManagement

Accountants (CMA)

y In the US,thereis a business titlegiven toqualifiedprofessionals in the managementaccountingarea.

y CMA is theprofessionaldesignation formanagementaccountants.

y Fourpartexam, continuingeducation,

code ofethics.y Administered by Institute ofCertified

Management Accountants,affiliated withInstitute of Management Accountants

(IMA).


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Accounting Jobs

y Managementaccountant:y Members ofan organization who design and operate

managementaccounting system.

y Controllery Highestlevelaccountant;has financialand

managementaccountingresponsibility reports toChief Financial Officer(CFO).

y Treasurery

Responsible forcash management,thatis,raisingcash when needed by borrowing,issuing stock orissuing bonds andinvestingexcess cash.


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Management vs. financial

accounting (page 1 of 6)

Necessity

y Financial Accounting (FA):tax office, other

governmentalagencies, banks, suppliers,

requires to publish financial statements accordingto GAAP. (In Turkey accordingto IFRS orVUK)

y Managementaccounting (MA) is optional.

y Purpose.

y FA: Produce financial statements foroutside

users.

y MA:Help managers plan,implementand control.


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accounting (2 of 6)

y Users.

y FA: faceless group,external users,present or

potential shareholders.y MA: Known managers who influenceinformation

needs.

y Underlying structure.

y FA: builtaround: Assets = Liabilities +Stockholders Equity.

y MA: 3 purposes each withits own set of concepts

and constructs (addressedlater).


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accounting (3 of 6)

y Source ofprinciples.

y FA: GAAP.

y

MA: whatevermanagers believe useful.y Time orientation.

y FA:historical,tellitlikeit was.

y MA: future/decision oriented,tellitlikeit will

be. (However,pastis often agoodpredictor

of future.)


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accounting (4 of 6)

y Information content.

y FA: summary ofprimarily monetary events

y

MA: non-monetary as wellas monetary info.y Information precision.

y FA: Uses approximations butas ageneralization

is moreprecisethan MA.

y MA: Management needs info rapidly to be usefulin decision makingandtherefore precision is

sometimes sacrificed.


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accounting (5 of 6)

y Report frequency:

y FA: Publicly traded, SEC:quarterly, with

moredetailedinfo annually.

y MA: Upto management.

y Reporttimeliness.

y FA: Usually, several weeks to months after

fiscal close ofaccountingperiod.

y MA: Quickly to be useful fordecision making.


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accounting (6 of 6)

y Reportentity.

y FA: Organization as a whole.

y MA: Relatively smallparts (responsibilities

centers suchas departments,productlines,divisions, subsidiaries as wellas organization as a

whole.)

y Liability potential.

y FA: May be sued by shareholders if believedto bemisleading.

y MA: Usedinternally unlikely to giveriseto legal

liability.


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Similarities

Mostelements of financialaccounting

also foundin managementaccounting.

y Same considerations that make sense for

GAAP also make sense forMA.

y Systems aredesignedto reduce

redundancies andprovideinfo forboth FA

& MA.y Bothare used fordecision making, one by

investors and one by managers, so there

are similarity of uses.


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Types of management

accounting info and their uses

y Purposes of MA system:

Measurement ofrevenues, costs,andassets.

Control.

yAiddecisions amongalternative courses of

action.

y Foreachpurposethereis a set of

principles andgeneralizations.


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Characterization ofManagement

Accounting Reporting

Historicalinformation:

Score keeping (How are wedoing?) or

Attention directing (Whatproblems require

lookinginto?)

Futureestimates:

Problem solving (Whatis best way to dealwithaproblem?)

Influencingimpact (influences actions ofmanagers).


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Measurement

Full costaccounting measures resources

usedin performing someactivity.

y

Full cost ofproducinggoods orprovidingservices = direct costs + indirect costs.

y Direct costs = costs directly tracedto goods or

services.

y Indirect costs = fairshare of costs incurred

jointly in producinggoods orservices.


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Control

Costs (also,revenues andassets) areidentifiedto and measured byresponsibility center.

yA managerheads eachresponsibilitycenter.

y Correctiveaction can only betaken by

individuals.y To helpidentify problems (and

opportunities) actual costs are measuredand comparedto a benchmark (budget,last year,industry average).


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Alternative choice decisions

Differential costs ofalternativepossible

actions aredeveloped.

y

Management may only considerdirectcosts forsome shortrun decisions.


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Chapter 15 Acc Text Cases

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