Managerial Accounting Textbook notes – Flashcards
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What is planning?
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Setting goals and objectives for the company and figuring out how to achieve them
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What is directing?
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Overseeing the company's day to day operations: cost reports, product sales information, and other managerial accounting reports
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What is controlling?
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Evaluating the results of business operations against the plan and making adjustments to keep the company pressing towards its goals
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What is the difference between managerial accounting and financial accounting?
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1. Financial accounting is geared towards producing annual and quarterly consolidated financial statements that will be used by investors and creditors to make investment and lending decisions. 2. Managerial accounting is designed to provide its managers with the accounting information they need to plan, direct, and control operations.
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What do financial accounting statements focus on?
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THE FUTURE providing RELEVANT information that helps managers make profitable business decisions
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Who are the primary users of financial accounting information?
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External users, such as creditors, stockholders, and government regulators
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Who are the primary users of managerial accounting information?
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Internal users such as managers
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What is the purpose of the information behind financial accounting?
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To help external users make investing and lending decisions
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What is the primary accounting product of financial accounting?
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Financial statements
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What must be included in the report and how must it be formatted for financial accounting?
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GAAP determines the content and format of financial statements
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What is the underlying basis of the information behind financial accounting?
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The information is based on historical transactions with external parties
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What information characteristic is emphasized behind financial accounting?
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The data must be reliable and objective
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What business "unit" is the report about for financial accounting?
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The company as a whole (consolidated financial statements). Limited segment data is provided in the footnotes.
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How often are the reports prepared for financial accounting?
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Annually and quarterly
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Does anyone verify the information for financial accounting?
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Independent certified public accounts (CPAs) audit the annual financial statements of publicly traded companies and express an opinion on the fairness of the financial information they contain
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Is the information required by an outside group/government agency for financial accounting?
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Yes, the Securities and Exchange Commission (SEC) requires publicly traded companies to issue annual audited financial statements
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Is there any concern over how the reports will affect employee behavior for financial accounting?
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The concern is about adequacy of disclosure; behavioral implications are secondary
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What do managerial accounting reports focus on?
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INTERNAL transactions, such as the movement of beverages and dry ingredients from central warehouses to individual restaurant locations
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What is the purpose of the information of managerial accounting reports?
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To help managers plan, direct, and control business operations and make business decisions
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What is the is the primary accounting product of managerial accounting?
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Any internal accounting report deemed worthwhile by management
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What must be included in the report, and how must it be formatted for managerial accounting?
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Management determines what it wants in a report, and how it wants to be formatted. Reports are prepared only when management believes the benefit of using the report exceeds the cost of preparing the report.
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What is the underlying basis of the information for managerial accounting?
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While some information is based on past transactions, managerial accounting focuses on the future. It provides information on both external and internal transactions
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What information characteristic is emphasized for managerial accounting?
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The data must be relevant
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What business "unit" is the report about for managerial accounting?
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Segments of the business, such as products, customers, geographic regions, departments, and divisions
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How often are the reports prepared for managerial accounting?
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It depends on management's needs. Some reports are prepared daily, while others may be prepared only one time.
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Does anyone verify the information for managerial accounting?
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No there are no independent audits. However, the company's internal audit function may examine the procedures used in preparing the reports.
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Is the information required by an outside group/government agency for managerial accounting?
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No authoritative body requires managerial accounting reports
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Is there any concern over how the reports will affect employee behavior for managerial accounting?
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Management carefully considers behavioral implications when designing the managerial accounting system
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What is a board of directors?
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Stockholders elect a board of directors to oversee their company.
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What is a chief executive officer (CEO)?
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Manages the company on a daily basis
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What does the treasurer do?
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The treasurer is primarily responsible for raising capital (through issuing stocks and bonds) and investing funds
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What does the controller do?
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The controller is usually responsible for general financial accounting, managerial accounting, and tax reporting
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What does the audit committee do?
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The audit committee overseas the internal audit function as well as the annual audit of the financial statement by the independent CPAs
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What does the cross-functional team do?
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Consists of employees representing various functions of the company, such as R & D, design, production, marketing, distribution, and customer service
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What does the Institute of Management Accountants (IMA) do?
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They are the professional association for management accountants in the United States
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What does the Certified Management Account (CMA) certification?
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To become a CMA you must pass a rigorous examination and maintain continuing professional education. It focuses on managerial accounting topics similar to those discussed in this book, as well as economics and business finance
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What is the American Institute of Certified Public Accountants (AICPA)?
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The world's largest association representing the accounting profession, joined forces with England's Chartered Institute of Management Accountants (CIMA)
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What is the Chartered Global Management Accountant designation (CGMA)?
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Available to qualifying AICPA and CIMA members, is meant to recognize the unique business and accounting skill set possessed by those CPAs who fill, or have filled accounting roles within an organization, as opposed to strictly public accounting roles
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What are the ethics management accountants must uphold?
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-Maintain their professional competence -Preserve the confidentiality of the information they handle -Uphold their integrity -Perform their duties with credibility
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What is the primary purpose and focus of managerial accounting?
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-Managerial accounting provides information that helps managers plan, direct, and control operations and make better decisions; it has a FUTURE ORIENTATION -FOCUS ON RELEVANCE TO BUSINESS DECISIONS
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How do managers design a company's managerial accounting system that is not regulated by GAAP?
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-Managers design the managerial accounting system so that the benefits (from helping managers make better decisions) outweigh the costs of the system.
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Where should management accountants be placed within the organizational structure?
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-In the past, most management accountants worked in isolated departments. Now over 50% of management accountants are deployed throughout the company and work on cross-functional teams. Management must decide which structure best suits its needs.
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What skills should management accountants possess?
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Because of their expanding role, they must have analytical skills, financial and managerial accounting knowledge, be able to work in teams, possess strong Excel skills, and written and oral communication skills
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What professional associations advocate for management accounts in the United States? ****
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The Institute of Management Accounts (IMA)
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By what ethical principles and standards should management accountants abide?
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-Honesty, objectivity, fairness
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What is the Sarbanes Oxley Act of 2002?
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Enhances internal control and financial reporting requirements
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What is the international financial reporting standards? IFRS
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IFRS varies from GAAP, but may be required for all public companies
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What is the Extensible Business Reporting Language (XBRL)?
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Enables companies to release financial and business information in a format that can be quickly, efficiently, and cost effectively accessed
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What is sustainability?
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Ability of a system to maintain its own viability
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Which companies need to comply with SOX?
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publicly traded companies
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How will IFRS benefit international companies?
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Companies that operate in more than one country no longer need to prepare multiple financial statements
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Ch: 2 Building Blocks of Managerial Accounting What is the triple bottom line?
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A company's performance is evaluated not only interns of profitability, but also its impact on people and the planet
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What are service companies?
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In business to sell intangible services
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What are merchandising companies?
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Walmart and Best Buy resell tangible products they buy from suppliers
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What are manufacturing companies?
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Use labor, plant, and equipment to convert raw materials into new finished products
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What is a raw materials inventory?
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Steel, glass, tires, upholstery fabric
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What is work in process inventory?
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Goods that are partway through the manufacturing process but not yet complete
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What is the finished goods inventory?
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Completed goods that have not yet been sold
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What is research and development?
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Researching and developing new and improved products or services and the process for producing them
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What is design?
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Detailed engineering of products and services and the processes for producing them
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What is production or purchases?
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Resources used to produce a product or service or to purchase finished merchandise intended for resale
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What is marketing?
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Promotion and advertising of products or services
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What is distribution?
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Delivery of products or services to customers
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What is customer service?
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Support provided for customers after the sale
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What is a cost object?
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Anything for which managers want a separate measurement of cost
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What is a direct cost?
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A cost that can be traced to the cost object. For example if the cost object is a Prius, then tires are a direct cost of the vehicle.
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What is an indirect cost?
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A cost that relates to the cost object but cannot be traced to it
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What is an inventorial product cost?
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Includes only costs incurred during the production or purchases stage of the value chain
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What are period costs?
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R & D, design, marketing, distribution, and customer service... operating expenses or "selling, general, and administrative expenses"
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What are indirect materials?
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Materials in the plant that are not easily traced
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What is indirect labor?
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janitors, security officers
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What are other indirect manufacturing costs?
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Plant-related costs
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What are prime costs?
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Combination of direct materials and direct labor
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What are conversion costs?
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The combination of direct labor and manufacturing overhead
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Ch: 3 Job costing What are the methods used to determine the cost of manufacturing a product?
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1. Process costing 2. Job costing
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What is process costing?
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Used by companies that produce extremely large numbers of identical units through a series uniform production steps or processes, or big batches
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What is job costing?
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Used by companies that produce unique, custom-ordered products, or relatively small batches
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What is a stock inventory?
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stock available to quickly fill customer orders
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What is a production schedule?
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The quality and types of inventory that are scheduled to be manufactured during the period
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What is a bill of materials?
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A receipt of raw materials needed to manufacture the job
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What is a raw materials record?
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Shows detailed information about each item in stock
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What is a purchase order?
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An order of purchases
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What is a receiving report?
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A duplicate of the purchase order except it does not pre-list the quantity of parts ordered
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What is cost plus pricing?
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Cost + markup on price
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What is extended producer responsibility (EPR)
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Take back laws... create future costs associated with the production of electronic devices and other problem waste
