Day 11 (Managerial Accounting) – Flashcards
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ALL DEFINITIONS AND STUFF IS FROM THE TEXTBOOK
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This should act as a citation so I don't get screwed for copying from the textbook
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Managerial Accounting
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Type of accounting that focuses on providing internal management with information needed to run the company efficiently and effectively.
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The rule that drives managerial accounting:
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The value or benefit of the information should be greater than the cost of obtaining that information
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Financial Accounting
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Type of accounting that focuses on providing stockholders and creditors with information needed to make investment and lending decisions.
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Decision Making
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Identifying alternative courses of action and choosing among them. i.e Planning, directing, and controller
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Planning
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Setting goals and objectives for the company and determining how to achieve them
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Directing
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Overseeing company's day-to-day operations
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Controlling
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Evaluating the results of business operations against the plan and making adjustments to keep the company pressing toward its goals
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Differences between managerial and financial accounting
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LOOK AT EXHIBIT 1-2 IN BT ON PAGE 5
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Some characteristics of Financial Accounting
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-Past -Accuracy -GAAP
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Some characteristics of Managerial Accounting
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-Future -Relevance -Cost/benefit
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Who are the primary uses of Managerial/Financial Accounting?
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Managerial: Internal managers Financial: External; investors
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What is the purpose of information for Managerial/Financial Accounting?
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Managerial: Help managers plan, direct, control Financial: Help external users make investing and lending decisions
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What is the primary accounting product for Managerial/Financial Accounting?
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Managerial: internal reports useful to management; could be labor reports, labor cost report Financial: General purpose financial statements; specific hard rules - LIFO/FIFO rules
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What is included and how is it formatted for Managerial/Financial Accounting?
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Managerial: Defined by management/subject to cost/benefit; no specific rules Financial: Determined by GAAP
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What is the underlying basis of info for managerial/financial accounting?
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Managerial: internal and external transactions focus on future Financial: based on historical transactions with external parties
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What is the emphasis for Managerial/Financial Accounting?
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Managerial: data must be relevant - needs to be helpful Financial: data must be reliable and objective
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What is the business unit for Managerial/Financial Accounting?
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Managerial: segments of the business Financial: company as a whole
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What is the frequency of preparation for Managerial/Financial Accounting?
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Managerial: depends on management needs Financial: annually and quarterly
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What is the verification for Managerial/Financial Accounting?
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Managerial: internal audit Financial: external audit
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What is the info requirements of outside group or agency for Managerial/Financial Accounting?
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Managerial: no requirement Financial: SEC requires publicly traded companies to issue audited financial statements
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What is the impact on employee behavior for Managerial/Financial Accounting?
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Managerial: careful consideration Financial: adequacy of disclosure is the concern
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Board of Directors
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Elected by the stockholders; oversees the company
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Chief Executive Officer
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Manages company on daily basis; directly below Board of Directors
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Chief Operating Officer
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Responsible for company's operations i.e. research and development, production, and distribution; directly below CEO
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Chief Financial Officer
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Responsible for company's financial concerns; directly below CEO
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Treasurer
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Responsible for raising capital (through issuing stocks and bonds) and investing funds; directly below the CFO
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Controller
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Responsible for general financial accounting, managerial accounting, and tax reporting; directly below the CFO
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Internal Audit Function
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Ensures that the company's internal controls and risk management policies are functioning properly; reports to audit committee (who is a subcommittee to Board of Directors)
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Audit Committee
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Oversees internal audit function and annual audit of financial statements by independent CPAs
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WHO reports to the audit committee and WHY?
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The Internal Audit Department and independent CPAs; to ensure management will not intimidate them or bias their work
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Cross-functional teams
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Employees who represent various functions of the company i.e. R&D, design, production, marketing, distribution, and customer service
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What are the skills management accountants need?
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-Solid knowledge of both financial and managerial accounting -Analytical skills as well as oral AND written communication skills -Ability to work on a team -Knowledge of how a business functions -Strong Microsoft Excel skills
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Institute of Management Accountants
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The professional association for management accountants in the US; aka IMA
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What is IMA's mission?
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To provide a forum for research, practice development, education, knowledge sharing, and advocacy of the highest ethical and best practices in management accounting and finance
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Certified Management Accountant
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Issued by the IMA; must pass an exam and maintain continuing professional education to become a CMA
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American Institute of Certified Public Accountants
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World's largest association representing accounting profession; joined forces with England's Chartered Institute of Management Accountants (CIMA)
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Chartered Global Management Accountant
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Available to qualifying AICPA and CIMA members; recognizes unique business and accounting skill set possessed by those certified public accountants who fill or have filled accounting roles within an organization
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RANDOM FUN FACT!
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40% of AICPA members work in industry, government, or education rather than public accounting
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IMA's Statement of Ethical Professional Practice
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Requires management accountants to: -Maintain professional competence -Preserve confidentiality of info they handle (most important - tough issue) -Uphold integrity -Perform duties with credibility
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How to resolve ethical dilemmas:
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-Follow company's policies for reporting unethical behavior
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If ethical dilemmas not resolved:
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-Discuss with immediate supervisor unless immediate supervisor is CEO, in which case go to Audit Committee of Board of Directors -Discuss with objective advisor/IMA Ethics counselor -Consult an attorney
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Triple Bottom Line
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Company's performance is evaluated not only in terms of profitability but also in terms of its impact on people and the planet
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Service Companies
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Business selling intangible services i.e. health care, insurance, banking, consulting; not tangible products; no inventory accounts, no COGS accounts
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Merchandising Companies
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Business that resells tangible products they buy from suppliers i.e. Walmart or Best Buy; ONE inventory account, includes all costs to acquire inventory and get inventory ready for sale
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Manufacturing Companies
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Business that uses labor, plant, and equipment to convert raw materials into new finished products to sell; look at supplier's invoice, add freight in if applicable
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Solve for COGS...
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Beginning inventory + purchases and freight in = COG available for sale - ending inventory = ....
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Merch Company Income Statement
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Sales revenue - COGS = gross profit - operating expenses = operating income
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Raw Materials Inventory
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All raw materials used in manufacturing
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Work in Process Inventory
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Goods that are partway through the manufacturing process but not yet complete
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Finished Goods Inventory
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Completed goods that have not yet been sold
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Value Chain
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Activities that add value to the company's products and services
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Research and Development
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Researching and developing new or improved products or services and the processes for producing them; R&D
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Design
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Detailed engineering of products and services and the processes for producing them
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Production or Purchase
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Resources used to produce a product or service or to purchase finished merchandise intended for resale
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Marketing
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Promotion and advertising of products or services
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Distribution
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Delivery of products or services to customers
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Customer Service
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Support provided for customers after the sale
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Life-Cycle Assessment
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A company analyzes the environmental impact of a product in an attempt to minimize negative environmental consequences throughout the entire lifespan of the product
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Biomimicry
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A company tries to mimic or copy the natural biological process in which dead organisms become the input for another organism or process
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Greenwashing
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An unfortunate practice of overstating a company's commitment to sustainability, can ultimately backfire as investors and consumers learn the truth about company operations
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Cost Object
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Anything managers want to separate measurement of cost i.e. Toyota's cost objects = -Individual units -Different models -Alternative marketing strategies
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Direct Cost
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Cost that can be traced directly to the cost object
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Indirect Cost
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Cost that relates to the cost object but cannot be traced to it
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Assign
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Attaching a cost to the cost object; must assign all direct and indirect costs to the cost object
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Allocate
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Divvying up money among all products and departments
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Total Costs
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Costs of all resources used throughout the value chain
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Inventoriable Product Costs
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Costs that include only costs incurred during production or purchases stage of value chain
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Period Costs
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Costs called operating expenses or selling, general, and administrative expenses (SG&A)
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Direct Materials
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The primary materials that become a physical part of the finished product
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Direct Labor
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The cost of compensating employees who physically convert raw materials into the company's products
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Manufacturing Overhead
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All manufacturing costs other than direct materials and direct labor
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Indirect Materials
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Materials used in the plant that are not easily traced to individual units
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Indirect Labor
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The cost of all employees in the plant other tan those direct labor employees
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Other Indirect Manufacturing Costs
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Plant-related costs like depreciation on the plant and plant equipment, plant property taxes and insurance, plant repairs and maintenance, and plant utilities
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Prime Costs
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Refers to the combination of direct materials and direct labor
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Conversion Costs
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Refers to the combinations of direct labor manufacturing overhead
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Operating Income
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The company's earnings before interest and income taxes
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Costs of Goods Manufactured (COGM)
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Represents what it costs the manufacturing company to produce the product; similar to "purchases and freight in" for a merchandiser
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How to calculate COGM
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Beginning work in process (WIP) + DM used + DL + MOH - ending WIP = ...
