Chapter 1: What Is Managerial Accounting

What are the two functions that enable management to go through the process of continually planning and evaluating?

The two important functions that enable management to continually plan for the future and assess implementation are called planning and control.

U.S. Generally Accepted Accounting Principles (U.S. GAAP)

a set of accounting rules that requires consistency in recording and reporting financial information.

Enterprise resource planning (ERP) Systems

are designed to record and share information across functional areas (e.g., accounting, marketing, human resources, and shipping) and across geographical areas (e.g., from a sales office in California to headquarters in Hong Kong).

Managerial Accounting

focuses on internal users—executives, product managers, sales managers, and any other personnel within the organization who use accounting information to make important decisions.

Financial Accounting

focuses on providing historical financial information to external users. External users are those outside the company, including owners (e.g., shareholders) and creditors (e.g., banks or bondholders)

Planning

is the process of establishing goals and communicating these goals to employees of the organization.

Control

is the process of evaluating whether the organization's plans were implemented effectively.

Financial Accountant

reports directly to the controller and assists in preparing financial information, in accordance with U.S. GAAP, for those outside the company.

Managerial Accountant

reports directly to the controller and assists in preparing information used for decision making within the organization.

Tax Accountant

reports directly to the controller and assists in preparing tax reports for governmental agencies, including the Internal Revenue Service.

What is the difference between information prepared by financial accountants and information prepared by managerial accountants?

Financial accounting focuses on providing historical financial information to external users. Managerial accounting focuses on internal users—executives, product managers, sales managers, and any other personnel within the organization.

Budgeted Income Statement

Indicates a profit plan for the future.

Chief Financial Officer (CFO)

Is in charge of all the organization's finance and accounting functions and typically reports to the chief executive officer.

What specific characteristics would we expect to see in managerial accounting information?

Managerial accounting often focuses on making future projections for segments of a company.

Managerial Accounting Summary

Managerial accounting provides detailed financial and nonfinancial information for internal users who use the information for decision making, planning, and control purposes.

How do organizations formalize their strategic plans?

Organizations formalize their plans by creating a budget, which is a series of reports used to quantify an organization's plans for the future.

Cash Flow Budget

Outlines cash inflows and outflows for the future.

How do organizations assess the implementation of their plans?

The control function evaluates whether an organization's plans were implemented effectively and often leads to recommendations for the future.

Controller

The controller is responsible for managing the accounting staff.

Financial Accounting Summary

Provides historical financial information for external users in accordance with U.S. GAAP.

Capital Budget

Shows the long-term investments planned for the future.