Management Accounting A Value Added Discipline

1. Management AccountingA Value Added Discipline Financial and Managerial Accounting Distinguished

2. 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

3. Financial/Managerial Accounting

4. Product Costs Vs Period Costs Product Costs are inventories first, then expensed when the product is sold; Period Costs are expensed whenever incurred

5. What are Product Costs? • Manufacturing Firm • Direct Materials such as wood, metal, shingles • Direct Labor incurred in producing the product • Indirect manufacturing costs such as supervisory salaries, machine maintenance, and supplies • Service Firm • Some few will have direct materials (plumber) • Direct Labor • Indirect production costs • Indirect costs in both types of firms are known as overhead

6. 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 • Period costs increase expenses whenever they are made