Managerial Accounting: Chapter 1

Strategic Planning

a type of planning that involves setting priorities and determining how to allocate corporate resources to help an organization accomplish both short-term and long-term goals companies often have multiple of these, as they span a number of years low-price, no-frills, clean alternatives VS superior quality, high-price luxury with amenities

information is

power the more you know, the better your decisions can be

the most important issue is whether the

reporting is useful for the planning, controlling, and evaluation purposes

companies that are publicly traded are

required to have their financial statements audited on an annual basis, and companies that are not public traded also may be required to have their financial statements audited by their creditors

financial reports rely on

structure generated using accepted principles that are enforced through a vast set of rules and guidelines known as GAAP

financial reports use data from

the accounting system that is gathered from the reporting of transactions in the form of journal entries and then aggregated into financial statements this information is monetary in nature

managerial accounting focuses more on

the future

Radio Frequency Identification (RFID)

uses electronic tags and labels to identify objects wirelessly over short distances

managerial accountants regularly calculate and manage

"what-if" scenarios to help managers make decisions and plan for future business needs

The 3 categories of a manager

1. planning 2. controlling 3. evaluating

Outsourcing

A decision by a corporation to turn over much of the responsibility for production to independent suppliers.

Enrolled agent (EA)

A tax professional who represents taxpayers in matters where they are dealing with the Internal Revenue Service (IRS).

nonprofit organizations

A tax-exempt organization that uses the surplus of its revenues to further achieve its ultimate objective of furthering a social cause, rather than distributing its income among its shareholders, leaders, or members. serve their communities in a variety of areas

Career Planning

Actions and activities that individuals perform in order to give direction to their work lives all companies need to plan ahead in order to continuously move forward think 3 5 10 years out start taking strides now to accomplish what it is you need to do in order to get there

Enterprise Resource Planning (ERP)

Business management software, usually a suite of integrated applications, that a company can use to collect, store, manage and interpret data from many business activities.

is managerial accounting governed by GAAP?

NOPE, so there is unending flexibility in the types of reports and information gathered

T/F managerial accounting uses nonfinancial data, whereas financial accounting relies solely on financial data

TRUE

Material Cost Analysis

The process, whether explicitly or implicitly, of considering the total expected material costs against the total expected benefits of using one type of material over another or in using one or more actions in order to choose the best or most profitable option.

financial statements include

a balance sheet, income statement, cash flow statement, retained earnings statement, and footnote

organizational chart

a drawing that represents every job in the organization and the formal reporting relationships between those jobs

Foreign Corrupt Practices Act (FCPA)

a law that prohibits U.S. corporations from making illegal payments to public officials of foreign governments to obtain business rights or to enhance their business dealings in those countries

Certified Management Accountant (CMA)

a professional accountant who has met certain educational and experience requirements, passed a qualifying exam, and been certified by the Institute of Certified Management Accountants

Generally Accepted Accounting Principles (GAAP)

a set of accounting standards that is used in the preparation of financial statements publicly traded companies must follow these rules

Mission Statement

a short statement of a company's purpose and focus should be broad enough that it will encompass future growth and changes of the company the function of accomplishing an entity's mission statement is a circular, ongoing process

Evaluating

also called assessing or analyzing involves comparing actual results against expected results can occur at the product, department, division, and company levels where there are deviations from the stated objectives, managers must decide what modifications are needed

Cost Accountants

amass large sums of data, checking for accuracy and then formulating the cost of raw materials, work in process, finished goods, labor, overhead, and other manufacturing costs

Certified Internal Auditor (CIA)

an accountant who has a bachelor's degree and two years of experience in internal auditing, and who has passed an exam administered by the Institute of Internal Auditors

Whistleblower

an employee who exposes unethical or illegal conduct within the federal government or one of its contractors

Financial Accounting Standards Board (FASB)

an independent board made up of accounting professionals who determine and publicize the standards of financial accounting and reporting in the United States this organization governs financial accounting but NOT MANAGERIAL ACCOUNTING

questions that CEOs will need information for

are my profits higher this quarter over last quarter? do I have enough cash flow to pay my employees? are my jobs priced correctly? are my products priced correctly in order for me to make the profit I need to make? who are my most productive and least productive employees?

an understanding of managerial accounting will

assist anyone in the business world in determining and understanding product costs, analyzing break-even points, and budgeting for expenses and future growth

Financial Analyst

assists in preparing budgets, tracking actual costs, examining task performance

how would a company know if they are expanding to more market share?

by implementing controls to measure which new stores are successfully selling the company's products, which products are being sold the most, what the sales volume and dollar value of the new stores are, and whether the sales in these new stores are affecting the volume of sales in current stores this helps the results of decisions to be identified and measured

CPA

certified public accountant the top tier in accounting certifications

Planning

combination of goals and objectives occurs at all levels of the organization can cover various periods of time

QUALITIES OF GOOD MANAGERIAL ACCOUNTANTS

commercial awareness collaboration effective communication strong technological skills extensive analytical skills ethics and values

The 4 standards of ethical conduct in management accountants' professional activities

competence confidentiality integrity credibility

investopedia

considered the largest internet financial education resource in the world

performance control

decreasing production costs by 10% to help guide or control the decisions made by managers

The principal purpose of managerial accounting is to

deliver information useful for management decision-making

Certified Government Auditing Professional (CGAP)

designation exclusively for auditors employed throughout the public sector (federal, state, local); requirements are the same as for the CIA, but with a different exam

managerial accounting reports are more

detailed and specific and can be customized budget analysis (variance report) cost of goods manufactured job order cost sheets production reports SINCE MANAGERIAL ACCOUNTING IS NOT GOVERNED BY GAAP OR OTHER CONSTRAINTS, IT IS IMPORTANT FOR THE CREATOR OF THE REPORTS TO DISCLOSE ALL ASSUMPTIONS USED TO MAKE THE REPORT since the reports are used internally and not generally released to the general public, the presentation of any assumptions does not have to follow any industry-wide guidelines each organization is free to structure its reports in the format that organizes its information in the best way for it

on the other hand, managerial accounting is

different more focused on divisions, departments, or any component of a business, down to individuals the mid-level and lower-level managers are typically responsible for smaller subsets within the company

lower-level managers spend more time on

evaluating

Certified financial analyst (CFA)

finance and investing credential offered by the CFA Institute Europe and asia

because financial accounting typically focuses on the company as a whole,

external users of this information choose to invest or loan money to the entire company and not a department or division within the company there is therefore a global focus in financial accounting

financial accountant users of reports

external users such as creditors, tax authorities and regulators, investors, customers, competitors, and others outside the company who rely on the financial statements and annual reports to access information about a company in order to make more informed decisions SINCE THESE PEOPLE DO NOT HAVE ACCESS TO THE DOCUMENTS AND RECORDS USED TO PRODUCE THE FINANCIAL STATEMENTS, THEY DEPEND ON GAAP

physical control

fingerprint identification or password protection

managerial accounting is much more

flexible, so the design of the managerial accounting system is difficult to standardize standardization is unnecessary

the information generated by the management accountants is intended

for internal use by the company's divisions, departments, or both there are therefore no rules, guidelines, or principles to follow

Intangible Goods

goods that we cannot reach out and touch, such as friendship and knowledge service companies

However, the information provided by financial accounting is primarily

historical and there is not sufficient and is often synthesized too late to be overly useful to management

effective communication

in both written and oral forms being able to gather the data quickly and accurately is important, but the data is meaningless if it is not presented in an intuitive style that the audience can understand

monetary accounting information

information relating to money or currency USED IN BOTH FINANCIAL AND MANAGERIAL REPORTS

feedback

information that is used to assess a process planned objective performance vs. actual performance allows management to evaluate the results, determine whether progress is being made, or determine whether corrective measures need to be taken

managerial accountant users of reports

internal users, those inside the company or organization who are responsible for managing the company's business interests and executing decisions such internal users may include management at all levels in all departments, owners, and other employees

Controlling

involves the monitoring of the planning objectives that were put into place; to measure whether plans are meeting objectives or goals, management must put in place ways to assess the success or lack of success antitheft tags to trigger an alarm ceiling cameras to catch thieves The tags and cameras serve as the controls

collaboration

involves working in cross-functional teams and earning the trust and respect of colleagues in order to complete a task

Commercial awareness

knowing how a business is run and how it is influenced by the external environment, and knowing and understanding the overall industry within which the business is operating

while you can find a cost of goods sold schedule in the financial statements of publicly traded companies,

it is difficult for outside parties to break it down in order to identify the individual costs of products and services

Tangible Goods

items we value or desire that we can reach out and touch

In expanding market share, the company wants to

maintain or improve its reputation with customers and does not want the planned increased availability or easier access to their products to decrease customer perceptions of the products or the company

managers can quickly attain

managerial accounting information no external, independent auditors are needed, and it is not necessary to wait until the year-end projections and estimates are adequate MANAGERS MUST UNDERSTAND THAT IN ORDER TO OBTAIN INFORMATION QUICKLY, THEY MUST ACCEPT LESS PRECISION IN THE REPORTING variance reports are produced daily otherwise... other reports are generated as-needed

objectives of a strategic plan

maximizing market share increasing short-term profits increasing innovation offering the best value for the cost maintaining commitment to community programs exceeding environmental protection mandates

managerial accountants are employed within organizations to

monitor costs sales budgets spending conduct audits predict future requirements aid the executive leaders of the organization with financial decision-making

purpose of managerial accountants

more specific to internal users, as they make available the information that could assist companies in increasing their performance and profitability unlike financial reports, management reporting centers on components of the business; by dividing the business into smaller sections, a company is able to get into the details and analyze the smallest segments of the business

managerial accounting uses some of the same financial information as financial accounting, but

much of that information will be broken down to a more detailed level; for example, in financial reporting, net sales are needed for the income statement in managerial, the quantity and dollar value of the sales of each product are likely more useful

nonmonetary accounting information

not relating to money or currency, such as the quantity of materials, number of employees, number of hours worked, and so forth

stockholders of a company are the

owners; however, they elect a board of directors to manage that company for them the board selects the officers who will implement the policies and strategic goals that the board has set in place

government agencies

permanent or semi-permanent agencies that oversee and regulate administration over certain areas government accountants deal with budgets, auditing, and payroll federal, state, county, city

higher-level managers spend more time on

planning

Certified Fraud Examiner (CFE)

professional designation administered by the Association of Certified Fraud Examiners in recognition of qualifications for a specialty area within forensic accounting

Financial accounting

provides information to enable stockholders, creditors, and other stakeholders to make informed decisions this information can be used to evaluate and make decisions for an individual company or to compare two or more companies

managerial accounting

provides information to managers and other users within the company in order to make more informed decisions

Sarbanes-Oxley Act of 2002

provides sweeping new legal protection for employees who report corporate misconduct public company accounting reform intended to protect investor by enhancing the accuracy and reliability of corporate financial statements and disclosures

financial statements are typically generated

quarterly and annually

budgeting

requires management to assess the resources, for example, time, money, and number and type of employees needed to meet current-year objectives often includes financial data such as worker pay rates and also nonfinancial data such as the number of customers an employee can serve in a given time period

Controller

responsible for the accounting side of the business (accounting records, financial statements, tax returns, and internal reports) REPORTS TO THE CFO

Budget Analyst

someone who arranges and manages the master budget and compares master budget projections to actual results

Cash-Management Accountant

someone with responsibilities that include transferring monies between accounts, monitoring deposits and payments, reconciling cash balances, creating and tracking cash forecasts, and performing all other cash-related financial processes

managerial accounting has a more

specific focus the information is more detailed and timelier

to be truly effective, goals need to be defined

specifically stated in terms of % growth both annually and in terms of the number of markets addressed in their growth projections from the managerial accounting perspective, planning involves determining steps or actions to meet the strategic or other goals of the company

although outside parties might be interested in this information, companies like tesla, microsoft, and boeing

spend significant amounts of time and money to keep their proprietary information secret; therefore, these internal budget reports are only available to the appropriate users

Objectives

targets that need to be met in order to meet the company's goals

CEO (Chief Executive Officer)

the corporation officer who has the overall responsibility for the management of the company

tesla wants to project the costs of producing a new line of automobiles

the managerial accountants could create a budget to estimate the costs, such as parts and labor, and after the manufacturing process has begun, they can measure the actual costs, thus determining if they are over or under their budgeted amounts

the distinction between managerial and financial accounting

the overriding roles of managers (planning, controlling, and evaluating) the main objective of management accounting is to provide useful information to managers to assist them in the planning, controlling, and evaluating phase

Treasurer

the person in control of the finance side of the business (cash position, corporation funds) REPORTS TO THE CFO

CFO (Chief Financial Officer)

the person overseeing all of the accounting and finance concerns

Managerial Accounting

the process that allows decision-makers to set and evaluate business goals by determining what information they need to make a particular decision and how to analyze and communicate this information Why is the company considering this decision? What information does she need? Where should she find this information? Would choosing the option with the lowest cost be the correct choice?

Institute of Management Accountants (IMA)

the professional organization that promotes the advancement of the management accounting profession

financial controls

the ratio for inventory turnover (inventory control) defined as cost of goods sold / average inventory

managers need accounting reports that deal specifically with

their division and their specific activities for instance, production managers are responsible for their specific area and the results within their division accordingly, these production managers need information about results achieved in their division, as well as individual results of departments within the division can be broken down into segments: geographic location product line customer demographics (age, race, gender)

the general purpose of financial statement reporting

to provide information about the results of operations, financial position, and cash flows of an organization useful to a wide range of users to make economic decisions

qualitative aspects

typically not quantified in dollars but evaluated using some other standards, such as customers served or students advised while these functions are initially stated in qualitative terms, most of these items would at some point be translated into a dollar value or dollar effect it would be the managerial accounting function to help determine the variables that would help measure the desired goal as well as plan how to quantify these measures HOWEVER, MEASURES ARE ONLY USEFUL IF TRACKED AND USED TO DETERMINE THEIR EFFECTIVENESS this is known as the control function of management

Internal Auditor

typically reports to high-level executives within the company often called on to investigate budget variances, industrial sabotage, poor work quality, fraud, and theft

while financial accounting focuses more on

what has already happened

Goals

what the company expects to accomplish over time this process begins after the mission statement has been determined

Bribery

when someone voluntarily offers payment to get an illegal advantage

managerial accountants help determine

whether plans are measurable, what controls should be implemented to carry out a plan, and what the proper means of evaluation of those controls are