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Managerial Accounting

Managerial Accounting. Week 3 supplement (or Week 4) David B. Hamm MBA, CPA June 2002 Revised Nov. 2003. What is Managerial Accounting?. Contrast between financial and managerial accounting:

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Managerial Accounting

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  1. Managerial Accounting Week 3 supplement (or Week 4) David B. Hamm MBA, CPA June 2002 Revised Nov. 2003

  2. What is Managerial Accounting? • Contrast between financial and managerial accounting: • Financial accounting (keeping books, financial statements, audits, etc.)—reporting to external parties • Managerial accounting—(budgeting, department reports, production reports, etc.)—needs of internal parties

  3. Contrast between Financial and Managerial Accounting (cont.) • Financial accounting • Focus on past—”results of operations” • Based on GAAP • Mandatory reporting with prescribed format (income stmt, balance sheet, etc.) • Managerial accounting • Focus on past, present and future (budgeting, planning, controlling, etc.) • No constraining standards or requirements—whatever management needs

  4. Controlling & the Management Cycle • Role of the Controller: • Chief accounting officer, responsible for reporting and interpreting data needed in management decision-making • Accounting information & the management cycle: • Planning—budgeting process • Controlling—performance reporting, budget to actual, identifying problems requiring management attention • Organizing & Directing—day to day information • Decision making—cost/benefit data, etc.

  5. New Management Philosophies & Management Accounting • Just-in-time (JIT) operations • Total quality management (TQM) operations • Activity based management (ABM) using activity based costing (ABC) models • GOAL—Continuous improvement • ISO 9000, Six-Sigma, etc. • Eliminate waste/ zero defects

  6. Management accounting reports • No specified format as in financial acctg –any form useful to management • Four W’s of Successful Report Presentation: • Why? Why is report needed? Purpose? • Who? Who will use report? • What? What information is relevant? Detail? • When? When needed? Timely info? Deadlines? • Basic purpose of any mgt report—provide useful information to management to aid in planning/controlling/organizing/decisions.

  7. Cost Accounting (intro.) • Cost accounting is a key element of management reporting • Cost classification: • Cost Traceability—Direct and Indirect costs • Direct—easily traceable • Indirect—essential, but not conveniently traced • Cost Behavior—Fixed and Variable costs • Fixed—do not fluctuate in relevant range • Variable—change proportionate to production

  8. Cost Accounting Intro (cont.) • Cost Behavior (continued): • Cost and operations: Value-added and Non value added: • Value-added—increases market value of product or service • Non value-added—increases cost but not market value • Cost and reporting: Product and Period Costs: • Period costs—non-inventoried, currently used • Product costs—become part of inventoriable production

  9. Flow of Product Costs: Direct Materials Direct Labor Factory Overhead Work In Process Finished Goods Balance Sheet: Ending Inventory Income Statement: Cost of Goods Sold

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