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8/8/2019 Chapter 15 Acc Text Cases
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Chapter
McGraw-Hill/Irwin Copyright 2007 by The McGraw-Hill Companies, Inc. All rights reserved.
The Nature of
Management
Accounting
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Financial Accounting
y Focuses on preparation of FS required
by GAAP.
y Prepared foruse by external users.
y Provides an overallpicture ofan entitys
financial condition andresults ofactivities.
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Management accounting
Process thatprovides info used by managers
for:
Planning,implementing,and controlling.
Applies to all organizations.
y Management needs moredetailedinfo.
y
Accounting systems provide operatinginfoneeded foroperatingdecisions.
y Managers areinterestedin summaries.
y In general, managementaccountingis summary
information.
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CertifiedManagement
Accountants (CMA)
y In the US,thereis a business titlegiven toqualifiedprofessionals in the managementaccountingarea.
y CMA is theprofessionaldesignation formanagementaccountants.
y Fourpartexam, continuingeducation,
code ofethics.y Administered by Institute ofCertified
Management Accountants,affiliated withInstitute of Management Accountants
(IMA).
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Accounting Jobs
y Managementaccountant:y Members ofan organization who design and operate
managementaccounting system.
y Controllery Highestlevelaccountant;has financialand
managementaccountingresponsibility reports toChief Financial Officer(CFO).
y Treasurery
Responsible forcash management,thatis,raisingcash when needed by borrowing,issuing stock orissuing bonds andinvestingexcess cash.
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Management vs. financial
accounting (page 1 of 6)
Necessity
y Financial Accounting (FA):tax office, other
governmentalagencies, banks, suppliers,
requires to publish financial statements accordingto GAAP. (In Turkey accordingto IFRS orVUK)
y Managementaccounting (MA) is optional.
y Purpose.
y FA: Produce financial statements foroutside
users.
y MA:Help managers plan,implementand control.
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Management vs. financial
accounting (2 of 6)
y Users.
y FA: faceless group,external users,present or
potential shareholders.y MA: Known managers who influenceinformation
needs.
y Underlying structure.
y FA: builtaround: Assets = Liabilities +Stockholders Equity.
y MA: 3 purposes each withits own set of concepts
and constructs (addressedlater).
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Management vs. financial
accounting (3 of 6)
y Source ofprinciples.
y FA: GAAP.
y
MA: whatevermanagers believe useful.y Time orientation.
y FA:historical,tellitlikeit was.
y MA: future/decision oriented,tellitlikeit will
be. (However,pastis often agoodpredictor
of future.)
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Management vs. financial
accounting (4 of 6)
y Information content.
y FA: summary ofprimarily monetary events
y
MA: non-monetary as wellas monetary info.y Information precision.
y FA: Uses approximations butas ageneralization
is moreprecisethan MA.
y MA: Management needs info rapidly to be usefulin decision makingandtherefore precision is
sometimes sacrificed.
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Management vs. financial
accounting (5 of 6)
y Report frequency:
y FA: Publicly traded, SEC:quarterly, with
moredetailedinfo annually.
y MA: Upto management.
y Reporttimeliness.
y FA: Usually, several weeks to months after
fiscal close ofaccountingperiod.
y MA: Quickly to be useful fordecision making.
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Management vs. financial
accounting (6 of 6)
y Reportentity.
y FA: Organization as a whole.
y MA: Relatively smallparts (responsibilities
centers suchas departments,productlines,divisions, subsidiaries as wellas organization as a
whole.)
y Liability potential.
y FA: May be sued by shareholders if believedto bemisleading.
y MA: Usedinternally unlikely to giveriseto legal
liability.
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Similarities
Mostelements of financialaccounting
also foundin managementaccounting.
y Same considerations that make sense for
GAAP also make sense forMA.
y Systems aredesignedto reduce
redundancies andprovideinfo forboth FA
& MA.y Bothare used fordecision making, one by
investors and one by managers, so there
are similarity of uses.
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Types of management
accounting info and their uses
y Purposes of MA system:
Measurement ofrevenues, costs,andassets.
Control.
yAiddecisions amongalternative courses of
action.
y Foreachpurposethereis a set of
principles andgeneralizations.
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Characterization ofManagement
Accounting Reporting
Historicalinformation:
Score keeping (How are wedoing?) or
Attention directing (Whatproblems require
lookinginto?)
Futureestimates:
Problem solving (Whatis best way to dealwithaproblem?)
Influencingimpact (influences actions ofmanagers).
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Measurement
Full costaccounting measures resources
usedin performing someactivity.
y
Full cost ofproducinggoods orprovidingservices = direct costs + indirect costs.
y Direct costs = costs directly tracedto goods or
services.
y Indirect costs = fairshare of costs incurred
jointly in producinggoods orservices.
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Control
Costs (also,revenues andassets) areidentifiedto and measured byresponsibility center.
yA managerheads eachresponsibilitycenter.
y Correctiveaction can only betaken by
individuals.y To helpidentify problems (and
opportunities) actual costs are measuredand comparedto a benchmark (budget,last year,industry average).
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Alternative choice decisions
Differential costs ofalternativepossible
actions aredeveloped.
y
Management may only considerdirectcosts forsome shortrun decisions.
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Chapter
McGraw-Hill/Irwin Copyright 2007 by The McGraw-Hill Companies, Inc. All rights reserved.
End of
Chapter 15
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