Managerial Accounting (Chapter 1.1) – Flashcards
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Managerial Accounting
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The process of preparing management reports and accounts that provide accurate and timely financial information required by managers to make day-to-day and short-term decisions.
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How does managerial accounting impact a manager's performance?
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it helps managers do their jobs more efficiently and effectively
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What is the purpose of financial statements
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To communicate information about the financial health of a company to external users (people outside of the company [creditors/investors]) creditors=a person or company to whom money is owed Investors =a person or company that puts money into financial property/schemes (in order to make a profit)
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Managerial accounting benefits ______. It includes reports and information prepared for a range of decision makers within the organization.
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Internal Users (These reports allow the ultimate decision maker (manager or other leadership roles) to make well-equipped decisions with the proper information.
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True or False? The information provided by managerial accountants is not disseminated (spread) to the general public.
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True, because competitors would have vital information about the strategies and capabilities of the business. Therefore, it would be easier for competitors to over-take the business.
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Textbook example for the reason why information from managerial accountants is disseminated
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Imagine what could happen if Samsung were to report publicly what it cost the company to produce a 55-inch 4K ultra-high-definition television. If Samsung's cost was higher than Sony's, Sony's sales manager could start and win a price war simply by setting Sony's price lower than Samsung's cost. Sony would still make money on the televisions it sold, but at the lower price, Samsung would lose money.
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What types of companies need to prepare GAAP financial statements?
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1. All public companies that are traded on a United States stock exchange and governed by the SEC (Securities and Exchange Commission)
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What about non-public companies (not traded on a U.S. stock exchange)?
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They prepare GAAP-based financial statements at the request of creditors (a person/organization to which money is owed)
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Just for good measure, what's the definition of GAAP (Generally Accepted Accounting Principles)
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Rules that govern how transactions are valued, recorded, and how financial information is presented
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Why is GAAP used?
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Because external users (member outside the business [investors/creditors]) can't verify the reported information. Therefore, GAAP provides protection and assurance to reports.
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Does Managerial accounting have a set of rules when it comes to sending information to decision makers? (Such as GAAP)
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No, internal users can create reports that suit their particular decision-making needs (since their information is exclusive to internal users only)
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Is managerial accounting necessary, or is it optional?
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It's optional. However, a company is unlikely to be successful in the long run without Consider the case of a family-run lumber mill that borrowed $2 million from the bank to modernize its operations, but then had trouble generating enough cash to repay the loan. The bank brought in consultants to improve the mill's profitability. In talking with the lumber mill's president and accountant, the consultants realized that the company had not prepared basic managerial accounting information such as the cost of producing a particular size of lumber. The product that managers thought was most profitable (because the company could sell all it could produce) was actually being sold at a loss. Unfortunately, the mill was not able to return to profitability and was eventually sold to satisfy the bank's loan.adequate managerial accounting information.
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_______-based financial statements present a picture of the financial health of the company as a whole
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GAAP
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Example of an Operating Segment for managerial accounting
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Macy's inventory for clothing (men's clothes, women's clothes, and shoes). It's impossible to determine to determine how well an item is selling based on one number in a balance sheet.
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Financial accounting is focused on the ____ while managerial accounting is focused on the ______ and ________
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past, past and future 1. Finance accounting is more historical in nature 2. managerial accounting helps managers to make decisions that will affect the company's future by projecting the results of certain decisions (in the past).
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Example of managerial accountants focused on the future
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Suppose Panera Bread is deciding on whether to open a new restaurant in a new location. Before they make that decision, managers will determine their decision based on future projections from that area. (They might take past performance into consideration, but they'll prioritize future projections over it)
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Emphasis on Timeliness
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Time-limited windows often arise in business. Because of the lack of time, sometimes business will prioritize timeliness over precision. Therefore, less accurate data in a short amount of time. Example - "Trust with your gut decisions"
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Managers participate in both _____ and _____ planning activities
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long-term and short-term
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Long-term planning
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establishes the direction in which an organization wishes to go in the future (also known as strategic planning)
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Questions long-term planners would say
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"Who are We?" "What do we want to do?" and "Where do we Want to go"
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short-term planning
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A management activity that translates the long-term strategy into a short-term plan to be completed within the next year. (operational planning) establishing a budget that specifies how resources will be spent to achieve the organization's goals
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controlling activities
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One of a manager's responsibilities that requires monitoring operations to identify problems requiring corrective action. (monitor day-to-day operations to ensure that processes are operating as expected)
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evaluating activities
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One of a manager's responsibilities that involves comparing actual results to planned results and assessing the performance of an individual or group of individuals who were responsible for the results. (comparing actual results to planned results)
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Decision Making
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The process of choosing a course of action after considering available alternatives (A human resource manager selecting the best health care plan for the company's employees.)
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Practice Questions for 1.1 True or False? The goal of management accounting is to provide accurate financial records for external reporting.
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False, Financial management tends to focus on timeliness, rather than accurate goals (since they make base their decisions on the future of the company). You can't base future decisions primarily on old information
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Which of the following is not a characteristic of managerial accounting? a. Providing information to internal users b. Focusing on historical cost information c. Focusing on operating segments d. Emphasizing the timeliness of information
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B.
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True or False? Managerial accounting information need not comply with generally accepted accounting principles (GAAP).
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True Internal users have access to all of the underlying data of the business (not external). Therefore, they don't have to follow a specific format for external users (GAAP).
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True or False? Operational planning converts a strategic plan into short-term action steps.
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True
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True or False? Controlling activities compare actual annual results to planned annual results for the purpose of awarding manager's bonuses.
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False Evaluating activities
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Marcie Scott owns several laundromats in Morrisville. Identify each of the following actions she performs as a planning, controlling, evaluating, or decision-making activity. 1. Marcie prepares a budget for the next year 2. Marcie chooses to replace the 10-year-old washing machines with the latest model. 3. Marcie looks at her income statement for the last month to see how well the business performed. 4. Marcie checks the change machine to make sure that it dispenses four, and only four, quarters for each dollar bill inserted.
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1. planning (Marcie is determining the resources required to operate next year) 2. Decision making (Marcie is deciding to take action) 3. Evaluating (Marcie is evaluating operations by comparing actual results against expectations) 4. Controlling (Marcie is monitoring daily operations to ensure that processes are operating as expected)