2Study ObjectivesExplain the distinguishing features of managerial accounting.Identify the three broad functions of management.Define the three classes of manufacturing costs.Distinguish between product and period costs.Explain the difference between a merchandising and a manufacturing income statement.Indicate how cost of goods manufactured is determined.Explain the difference between a merchandising and a manufacturing balance sheet.Identify trends in managerial accounting.1. On the topic, “Challenges Facing Financial Accounting,” what did the AICPA Special Committee on Financial Reporting suggest should be included in future financial statements?Non-financial Measurements (customer satisfaction indexes, backlog information, and reject rates on goods purchases).Forward-looking InformationSoft Assets (a company’s know-how, market dominance, marketing setup, well-trained employees, and brand image).Timeliness (no real time financial information)
3Managerial Accounting Basics Definition of Managerial AccountingA field of accounting that provides economic and financial information for managers and other internal users.Also called Management Accounting
4Managerial Accounting Basics Managerial Accounting ActivitiesExplain manufacturing and nonmanufacturing costs and how they are reported. (Chapter 19)Compute cost of providing a service or manufacturing a product. (Chapters 20 and 21)Determine behavior of costs and expenses as activity changes. (Chapter 22)
5Managerial Accounting Basics Managerial Accounting Activities (continued)Assist management in profit planning and formalizing these plans in the form of budgets. (Chapter 23)Help to control costs by comparing actual results with planned objectives and standard costs. (Chapters 24 and 25)Accumulate and present data for making decisions. (Chapter 26)
6Managerial Accounting Basics Distinguishing FeaturesApplies to all types of business -Service, Merchandising, and ManufacturingApplies to all forms of businesses –Proprietorships, Partnerships, and CorporationsApplies to not-for-profit and profit oriented companies
7Managerial Accounting Basics Distinguishing Features: ContinuedMore responsible for strategic cost managementTeams with people from production, marketing, engineering, etc.Aid in making critical decisions
8Comparing Managerial and Financial Accounting SimilaritiesBoth deal with economic events of a business –Thus, interests overlapBoth require that economic events bequantified and communicated tointerested parties –Determining unit cost is part ofmanagerial accounting,Reporting cost of goods manufacturedis a part of financial accountingSO 1 Explain the distinguishing features of managerial accounting.
9Comparing Managerial and Financial Accounting DifferencesIllustration 19-1SO 1 Explain the distinguishing features of managerial accounting.
10Comparing Managerial and Financial Accounting Review QuestionManagerial accounting:a. Pertains to the entity as a whole and is highly aggregated.b. Places emphasis on special-purpose information.c. Is limited to cost data.d. Is governed by generally accepted accounting principles.SO 1 Explain the distinguishing features of managerial accounting.
11SO 2 Identify the 3 broad functions of management. Management FunctionsManagement FunctionsManagement’s activities and responsibilities can be classified into the following three broad functions:PlanningDirectingControllingSO 2 Identify the 3 broad functions of management.
12SO 2 Identify the 3 broad functions of management. Management FunctionsPlanningLook ahead and establish objectives such as –Maximize short-term profitCommit to environmental protectionKey Objective: Add value to the businessValue measured by trading price of stockand by potential selling price of the companySO 2 Identify the 3 broad functions of management.
13SO 2 Identify the 3 broad functions of management. Management FunctionsDirectingCoordinate diverse activities and human resourcesImplement planned objectivesProvide incentives to motivate employeesHire and train employees includingexecutives, managers, and supervisorsProduce smooth-running operationSO 2 Identify the 3 broad functions of management.
14SO 2 Identify the 3 broad functions of management. Management FunctionsControllingKeep activities on trackDetermine whether goals are metDecide changes needed to get back on trackMay use an informal or formal system of evaluationsGood decision making is the outcome of good judgment in planning, directing, and controlling.SO 2 Identify the 3 broad functions of management.
15Review Question Management Functions The management of an organization performs several broad functions. They are:a. Planning, directing, and selling.b. Directing, manufacturing, and controlling.c. Planning, manufacturing, and controlling.d. Planning, directing, and controlling.SO 2 Identify the 3 broad functions of management.
16Good Ethics – Good Business Business EthicsBusiness scandals caused massive investment losses and employee layoffs.Corporate fraud has increased 13% in last 5 years.Employee fraud – 60% of all fraudIntentional misstatement of financial reportsAka financial reporting fraudMost costly to companiesSO 2 Identify the 3 broad functions of management.
17Good Ethics – Good Business Creating Proper IncentivesSystems to monitor and evaluate employees may produce incentives for unethical actions.Employees may feel that they must succeed no matter what.Ineffective and unrealistic controls may result in declining product quality.SO 2 Identify the 3 broad functions of management.
18Good Ethics – Good Business Code of Ethical StandardsSarbanes-Oxley Act of 2002Clarifies management’s responsibilities.Certifications by CEO and CFO -fairness of financial statements andadequacy of internal controlSelection criteria for Board of Directors and Audit CommitteeSubstantially increased penalties for misconductIMA Statement of Ethical Professional PracticesSO 2 Identify the 3 broad functions of management.