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Management Accounting A Value Added Discipline Financial and Managerial Accounting Distinguished
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Objectives of Chapter 1 Comparison of Financial Accounting with Managerial Accounting Distinguish Product Costs From Period Costs To Understand Financial Statement effects of Product Costs and Period Costs
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Financial/Managerial Accounting Features Financial Acctg Managerial Acctg User Types Outside (External) Inside (Internal) Level of Aggregation Global (Entire Company) Detailed or subunits Regulation FASB; GAAP; SEC Value-Added Characteristics Objective, reliable, consistent, historical Estimates and projections Time Horizon Historical Present & Future Reporting Freq Periodic; Years, etc Continuous
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Product Costs Vs Period Costs Type of Cost AssetsExpenses Product Costs Inventory Cost of Goods Sold Period Costs Expenses Product Costs are inventories first, then expensed when the product is sold; Period Costs are expensed whenever incurred
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What are Product Costs? Manufacturing Firm Direct Materials such as wood, metal, shingles Direct Materials such as wood, metal, shingles Direct Labor incurred in producing the product Direct Labor incurred in producing the product Indirect manufacturing costs such as supervisory salaries, machine maintenance, and supplies Indirect manufacturing costs such as supervisory salaries, machine maintenance, and supplies Service Firm Some few will have direct materials (plumber) Some few will have direct materials (plumber) Direct Labor Direct Labor Indirect production costs Indirect production costs Indirect costs in both types of firms are known as overhead
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Financial Statement Effects Product Costs will first increase an asset account (Inventories) and then increase and expense account (Cost of Goods Sold) when products are sold It is important when building inventories to be specific in determining your per unit cost (Cost Accounting) as not all inventoried products are sold during the period they were made It is important when building inventories to be specific in determining your per unit cost (Cost Accounting) as not all inventoried products are sold during the period they were made Period costs increase expenses whenever they are made
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