MANAGERIAL ACCOUNTING CHAPTER 1 INTRO TO MANAGERIAL 1 Managerial accounting provides information that helps managers fulfill their responsibilities Integrated throughout all of these responsibilities is decision making 2 Managers Three Primary Responsibilities a Planning involves setting goals and objectives for the company and determining how to achieve them i Setting budgets b Directing overseeing the company s day to day operations i Management uses product cost reports product sales information and other managerial accounting reports to run daily business operations c Controlling evaluating the results of business operations against the plan and making adjustments to keep the company pressing toward its goals i Using feedback to take corrective actions if needed ii Ex increase local advertising to increase sales 3 Managerial accounting emphasizes relevant information that can be used to make business decisions that will positively impact the future operations of the company 4 Differences between managerial and financial accounting a Who are the primary users of the information i Managerial ii Financial 1 Internal users such as managers regulators b What is the purpose of the information i Managerial 1 External users such as creditors stockholders and government 1 To help managers plan direct and control business operations and make business decisions 1 To help external users make investing and lending decisions c What is the primary accounting product 1 Any internal accounting report deemed worthwhile by management 1 Financial statements d What must be included in the report and how must it be formatted ii Financial i Managerial ii Financial i Managerial 1 Management determines what it wants in a report and how it wants it formatted Reports are prepared only when management believes the benefit of using the report exceeds the cost of preparing the report ii Financial i Managerial ii Financial i Managerial ii Financial ii Financial 1 Generally Accepted Accounting Principles GAAP determine the content e What is the underlying basis of the information and format of financial statements i Managerial 1 While some information is based on past transactions managerial accounting focuses on the future It provides information on both external and internal transactions 1 The information is based on historical transactions with external parties f What information characteristic is emphasized 1 The data must be relevant 1 The data must be reliable and objective g What business unit is the report about 1 Segments of the business such as products customers geographical regions departments and divisions 1 The company as a whole consolidated financial statements Limited segment data is provided in the footnotes 1 It depends on management s needs Some reports are prepared daily while others may be prepared only one time h How often are the reports prepared i Managerial ii Financial 1 Annually and quarterly i Does anyone verify the information i Managerial 1 There are no independent audits However the company s internal audit function may examine the procedures used in preparing the reports 1 Independent CPAs audit the annual financial statements of publicly traded companies and express an opinion on the fairness of the financial information they contain j Is the information required by an outside group government agency 1 No authoritative body requires managerial accounting reports ii Financial i Managerial ii Financial 1 Yes the Securities and Exchange Commission SEC requires publicly traded companies to issue annual audited financial statements k Is there any concern over how the reports will affect employee behavior i Managerial ii Financial 1 Management carefully considers behavioral implications when designing the managerial accounting system 1 The concern is about adequacy of disclosure behavioral implications a Ethical behavior means doing the right thing regardless of the consequences Not all unethical behavior is illegal but all illegal behavior is unethical 5 The importance of Ethical behavior are secondary b Unethical behavior includes i Dishonesty ii Unfairness iii Lack of objectivity iv 6 Sustainability Irresponsibility a Sustainability as defined by the United Nations is the ability to meet the needs of the present without compromising the ability of future generations to meet their own needs b Book definition the ability of a system to maintain its own viability endure without c giving way or use resources so they are not depleted or permanently damaged In other words it s the ability of a system to operate in such a manner that it is able to continue indefinitely d The three pillars of sustainability i Environmental ii Social iii Economic 1 a company will only be viable in the long run if all three of these three factors are considered when making business decisions e The triple bottom line recognizes that a company s performance should be viewed not only in terms of its ability to generate economic profits for its owners as has traditionally been the case but also by its impact on people and the planet i Environmental planet ii Social people iii Economic profits CHAPTER 2 BUILDING BLOCKS OF MANAGERIAL 1 Two basic ways of generating more profit Increase revenue a b Decrease expenses i New products ii New customers iii New markets global iv New packaging Increase price but be aware of decrease in volume as a result v Shift product mix to higher margin products vi vii Decrease price to increase volume viii Decrease volume of materials in product 2 How do companies that embrace sustainability differ a Still focus on profit but they also consider the social and environmental impact of all decisions 3 Common types of companies a Service companies provide sell intangible services i Health care consulting banking insurance legal etc b Merchandising companies resell tangible products purchased from supplies i Walmart Target Best Buy Sports Authority etc c Manufacturing companies convert raw materials into new finished products by using labor plant and equipment i Toyota Ben Jerry s ii Carry 3 types of inventory 1 Raw materials inventory all raw materials used in the manufacturing a Steel engines tires glass for Toyota plus janitorial supplies process and in the plant lubricants nuts bolts finished 2 Work in process inventory goods that have been started but not yet 3 Finished goods inventory completed goods that have not been sold 4 The Value Chain a Functions activities within a
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