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Financial & Managerial Financial & Managerial Accounting 2002eAccounting 2002e
Belverd E. Needles, Jr.Belverd E. Needles, Jr.Marian PowersMarian PowersSusan CrossonSusan Crosson
- - - - - - - - - - -Multimedia Slides by:
Harry Hooper Santa Fe Community College
Chapter 15Chapter 15A Manager’s A Manager’s
Perspective: The Perspective: The Changing Business Changing Business
EnvironmentEnvironment
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1. Define management accounting and distinguish between management accounting and financial accounting.
2. Explain the management cycle and its connection to management accounting.
3. Identify the management philosophies of continuous improvement and discuss the role of management accounting in implementing those philosophies.
LEARNING OBJECTIVESLEARNING OBJECTIVES
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4. Define performance measures, recognize the uses of those measures in the management cycle, and prepare an analysis of non-financial data.
5. Identify the important questions a manager must consider before requesting or preparing a management report.
6. Compare accounting for inventories and cost of goods sold in merchandising, and manufacturing organizations.
7. Identify the standards of ethical conduct for management accountants.
LEARNING OBJECTIVESLEARNING OBJECTIVES
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Definition of Management Accounting Definition of Management Accounting
The Institute of Management Accountants (IMA): “The process of identification, measurement, accumulation, analysis, preparation, interpretation, and communication of financial (and nonfinancial) information used by management to plan, evaluate, and control within the organization and to assure appropriate use and accountability for its resources.
Introduction to Introduction to Management AccountingManagement Accounting
OBJECTIVE 1
Define management accounting and distinguish between management accounting and financial accounting.
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Management AccountingManagement Accounting
Management accounting is an extension of financial accounting and applies mainly to internal operations.
Management accounting focuses on the techniques and procedures for information gathering and reporting to management.
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Management AccountingManagement Accounting
Managers need various types of timely, accurate information.
Product and service costing information.
Information for planning of and control over operations.
Special reports and analyses to assist in managerial decision making.
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Management AccountingManagement Accounting
Management accounting is necessary for all forms and sizes of business. The types of data needed to ensure efficient
operations do not depend on an organization’s size.
All organizations can become more cost-effective and more profitable.
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What Is Management Accounting?What Is Management Accounting?
Management accounting differs from financial accounting in many respects. Report format.
Purpose of reports.
Primary users.
Units of measure.
Nature of information.
Frequency of reporting.
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Comparison of Management and Financial Comparison of Management and Financial AccountingAccounting
Areas ofComparison
ManagementAccounting
FinancialAccounting
Report format Flexible format, driven byuser's needs
Based on generallyaccepted accountingprinciples
Purpose ofreports
Provides information forplanning, control,performancemeasurement, anddecision making
Report on pastperformance
Primary users Employees, managers,suppliers
Owners, lenders,customers,government agencies
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Comparison of Management and Financial Comparison of Management and Financial AccountingAccounting
Areas ofComparison
ManagementAccounting
FinancialAccounting
Units ofmeasure
Historical or future dollar;physical measure in timeor number of objects
Historical dollar
Nature ofinformation
Future-oriented; objectivefor decision making; moresubjective for planning;relies on estimates
Historical, objective
Frequency ofreports
Prepared as needed; mayor may not be on aregular basis
Prepared on a regularbasis (minimum ofonce a year)
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Q.Q. What three types of information does management receive from the management accountant?
A.A. Product costing information, planning and control information, and special reports and analyses.
Discussion Discussion
The Management CycleThe Management Cycle
OBJECTIVE 2
Explain the management cycle and its connection to management accounting.
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The Management CycleThe Management Cycle
Management is expected to use resources wisely, operate profitably, pay debts, and abide by laws and regulations.
Expectations motivate managers to establish the objectives, goals, and strategic plans of the organization.
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The Management CycleThe Management Cycle Traditionally, management operates in four stages:
1. Planning Long and short term. To support decision-making and set expectations.
2. Executing Hiring, scheduling, acquiring assets (including inventory),
reducing waster, generating revenues.
3. Reviewing Controlling operations. Comparing actual performance to plan.
4. Reporting To stockholders, creditors, other managers, other interested
parties.
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The Management CycleThe Management Cycle
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The Management CycleThe Management Cycle
Management accounting services information needs of management by:
1. Developing plans and analyzing alternatives.
2. Communicating plans to key personnel.
3. Evaluating performance.
4. Reporting the results of activities.
5. Accumulating, maintaining, and processing an organization’s financial and nonfinancial information.
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Q.Q. What are the four stages of traditional
management?
A.A. 1. Planning.
2. Executing.
3. Reviewing.
4. Reporting.
Discussion Discussion
Meeting the DemandsMeeting the Demandsof Global Competitionof Global Competition
OBJECTIVE 3
Identify the new management philosophies for continuous improvement and discuss the role of management accounting in implementing these philosophies.
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New Management New Management PhilosophiesPhilosophies
Three significant new management philosophies are as follows:
1. Just-in-time (JIT) operating environment.
2. Total quality management (TQM).
3. Activity-based management (ABM).
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New Management New Management PhilosophiesPhilosophies
All of these approaches are designed to:
1. Increase product quality.
2. Reduce waste and inefficiency.
3. Reduce cost.
4. Increase customer satisfaction.
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The Continuous Improvement EnvironmentThe Continuous Improvement Environment
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Theory of Constraints Theory of Constraints
Identify performance or production bottlenecks (limiting factors).
Overcome limitation. Identify next bottleneck.
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The Goal: Continuous Improvement The Goal: Continuous Improvement Avoid complacency. Constantly seek a better method. Reduce defects or poor quality. Reduce or eliminate nonvalue-adding
activities.
Results: Product/service costs and delivery times reduced. Quality and customer satisfaction increases.
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Q. What are the new management philosophies designed to accomplish?
A. 1. Increase product quality.
2. Reduce waste and inefficiency.
3. Reduce cost.
4. Increase customer satisfaction.
Discussion Discussion
Performance MeasuresPerformance Measures
OBJECTIVE 4
Define performance measures, recognize the uses of those measures in the management cycle, and prepare an analysis of nonfinancial data.
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Performance MeasuresPerformance Measures
Performance measures provide an
indication of an organization’s
performance in relation to a specific
goal or an expected outcome.
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Examples of Performance MeasuresExamples of Performance Measures
Financial performance measures:1. Return on investment.
2. Net income as a percentage of sales.
3. Costs of poor quality as a percentage of sales.
Nonfinancial performance measures:1. Number of customer complaints.
2. Hours of inspection.
3. Time to fill an order.
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Performance MeasuresPerformance Measures
Performance measures are useful in reducing waste in operating activities.
Management uses performance measures in all stages of the management cycle.
In planning to motivate.
In executing to guide, and assign costs.
In reviewing to improve future performance.
In reporting to communicate results.
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Analysis of Nonfinancial Data – BankAnalysis of Nonfinancial Data – Bank
Kings Beach National BankSummary of Number of Customers ServedFor the Quarter Ended December 31, 20xx
Part A Number of Customers Served
Window October November DecemberQuarter
Totals
1 5,428 5,186 5,162 15,776
2 5,280 4,820 4,960 15,060
3 4,593 4,494 4,580 13,667
Totals 15,301 14,500 14,702 44,503
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The Balanced ScorecardThe Balanced Scorecard
A framework that links the perspective of shareholders: Investors Employees Customers
with the organization’s mission, vision, plans, and resources.
Provides clear, measurable performance targets.
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Analysis of Nonfinancial Data Analysis of Nonfinancial Data
Performance targets and measurements of business process may be nonfinancial.
Quality related performance measures are often nonfinancial.
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Analysis of Nonfinancial Data – BankAnalysis of Nonfinancial Data – Bank
Kings Beach National BankSummary of Number of Customers ServedFor the Quarter Ended December 31, 20xx
Part B Number of Customers Served per Hour
Window October November DecemberQuarter
Averages
1 31.93 30.51 30.36 30.93
2 31.06 28.35 29.18 29.53
3 27.02 26.44 26.94 26.80
Totals 90.01 85.30 86.48 87.26
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Q.Q. Give three examples of reports based on non-financial data that are useful to a bank manager.
A.A. Teller transaction analysis.
Drive-up window efficiency reports.
Time needed to complete a loan transaction.
Discussion Discussion
Management Accounting Management Accounting Reports and AnalysisReports and Analysis
OBJECTIVE 5
Identify the important questions a manager must consider before requesting or preparing a management report.
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The Four W’sThe Four W’s Report preparation depends on:
Why? Why are we preparing the report?
What? What information is needed?
Who? Who is the audience for the report?
When? When is the report due?
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Q.Q. State and briefly explain the “four W’s” of preparing a managerial report.
A.A. Why is the report being prepared?
What information should be provided?
For whom is the report intended?
When is the report due?
Discussion Discussion
Merchandising Versus Merchandising Versus Manufacturing OrganizationsManufacturing Organizations
OBJECTIVE 6
Compare accounting for inventories
and cost of goods sold in service,
merchandising, and manufacturing
organizations.
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Comparison of Financial Statements for Service, Merchandising, and Comparison of Financial Statements for Service, Merchandising, and Manufacturing OrganizationsManufacturing Organizations
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Service, Merchandising, and Service, Merchandising, and Manufacturing OrganizationManufacturing Organization
Different types of organizations have different financial reporting formats.
Examples: Service organizations maintain no inventories
for sale. Merchandising organizations only have one
inventory account. Manufacturing organizations use materials,
work in process and finished goods inventory accounts.
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MerchandisersMerchandisers
Merchandisers purchase goods already manufactured, and resell them.
1. They accumulate the purchased cost of goods.
2. They have only one type of inventory (merchandise inventory.)
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Merchandising Organization Merchandising Organization
Beginning Merchandise Inventory
+ Net Cost of Goods Purchased
- Ending Merchandise Inventory
= Cost of Goods Sold
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ManufacturersManufacturers
Manufacturers design and
manufacture products for sale.1. They must accumulate the costs of
manufacturing products.
2. Their inventory consists of materials, work
in process, and finished goods.
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Manufacturing OrganizationManufacturing Organization
Beginning Finished Goods Inventory
+ Cost of Goods Manufactured
- Ending Finished Goods Inventory
= Cost of Goods Sold
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Service Companies Service Companies
Service Companies’ Cost of Sales = Net Cost of Services Sold
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ManufacturingManufacturingVersus MerchandisingVersus Merchandising
Both types of organizations report:
The cost of unsold goods on the balance sheet.
The cost of goods sold on the income statement.
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Q.Q. What three inventory accounts does a manufacturer maintain?
A.A. 1. Materials Inventory.
2. Work in Process Inventory.
3. Finished Goods Inventory.
Discussion Discussion
Standards of Ethical ConductStandards of Ethical Conduct
OBJECTIVE 7
Identify the standards of ethical
conduct for management accountants.
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Ethical ConflictsEthical Conflicts
May occur because different constituencies have different requirements.
Management must balance the needs of external partners.
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Ethical StandardsEthical Standards
The management accountant’s ethical
standards relate to:
Competence.
Confidentiality.
Integrity.
Objectivity.
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Competence StandardsCompetence Standards
Develop knowledge and skills on an ongoing basis.
Perform duties in accordance with relevant laws and technical standards.
Prepare complete and clear reports after appropriate analysis of information.
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Confidentiality StandardsConfidentiality Standards
Refrain from disclosing confidential information.
Make sure that subordinates refrain from disclosing confidential information.
Refrain from using confidential information for unethical or illegal advantage.
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Integrity StandardsIntegrity Standards Avoid actual or apparent conflicts of
interest.
Avoid activities that would prejudice one’s ability to carry out duties ethically.
Refuse any gift or favor that might influence one’s actions.
Avoid activities that could discredit the profession.
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Integrity StandardsIntegrity Standards
Avoid activities that could threaten the organization’s legitimate and ethical objectives.
Acknowledge any professional limitations relative to the performance of one’s job.
Communicate both favorable and unfavorable information and opinions.
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Objectivity StandardsObjectivity Standards
Communicate information fairly and
objectively.
Disclose fully all relevant
information to users.
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Resolution of Ethical ConflictResolution of Ethical Conflict
Follow organizational policies. If these do not resolve the conflict:
Discuss with the immediate superior, or next higher level authority involved. (Do not communicate with external parties.)
Clarify issues with an objective advisor. Consult your own attorney about legal
obligations and rights. If ethical issues cannot be resolved, consider
resignation.
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Q.Q. Management accountants must adhere to what four facets of ethical conduct?
A.A. 1. Competence.
2. Confidentiality.
3. Integrity.
4. Objectivity.
Discussion Discussion
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1. Define management accounting and distinguish between management accounting and financial accounting.
2. Explain the management cycle and its connection to management accounting.
3. Identify the management philosophies of continuous improvement and discuss the role of management accounting in implementing those philosophies.
OK, LET’S REVIEW . . .
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CONTINUING OUR REVIEW . . .
4. Define performance measures, recognize the uses of those measures in the management cycle, and prepare an analysis of nonfinancial data.
5. Identify the important questions a manager must consider before requesting or preparing a management report.
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AND FINALLY . . .
6. Compare accounting for inventories and cost of goods sold in merchandising and manufacturing organizations.
7. Identify the standards of ethical conduct for management accountants.