Introduction to management accounting, covering all the basics of Managerial accounting for universities students. Includes introduction, Accounting concepts, Stock control, Overhead allocation, Pricing methods, Budgeting, Activity based costing, Produce costing, NPV, IRR etc. in simple terms for b...
Accounting
The process of identifying, measuring and communicating economic information to
permit informed and decisions by users of information
Accounting equation
Capital = Assets - liability
Purpose of business
● Purpose of business is to create and keep of customers
● In order to succeed a business must focus on keeping the customer satisfied
Types of business
● Sole trader
● Partnership
● Limited Company
● PLC
● Charity organisations
● Governments
● Franchise
Objectives
● Profitability
● Productivity
● Customer service
● Growth
● Maintain Finance
● Marketing
● Competitive Analysis
Why are businesses divided in departments?
● The sheer volume of activity or number of staff employed makes it impossible for
one person to manage them.
● Certain business operations require specialised knowledge and expertise
● Geographical locations of some of business operations makes it more practical to
have managers managing the different operations in each location.
Purpose of cost information;
1. Inventory valuation
, 2. Future costs and budgeting
3. Cost control and performance
Strategic management process:
1. Establish mission and objectives
2. Undertake a position analysis
3. Identify and assess the strategic options and formulate plans
4. Preform, review and control
Management information system:
- MIS is a computerised database of financial information organised and
programmed in a way that produces regular reports on operations for every level
Common features:
● information identification
● Information recording
● information analysis
● Information reporting
What information do managers need?
1. Developing objectives and plans: managers are responsible for establishing
mission and objectives - so MIS need to generate information financial and non
financial to allow the to set the goal and objectives
2. Performance evaluation and control: MIS can help in reviewing performance of
the business against agreed
3. Allocating resources: resources available to a business are limited. Managers
need to ensure that they are used in an effective and efficient manner
4. Determining costs and benefits: management accounting can provide managers
with costs and benefits associated with a particle strategy
Financial vs management accounting;
- Managerial accounting: (cost accounting)
The process of identifying, measuring & interpreting and communicating information for
the pursuit of an organisation
● information used by the managers in order to assess progress and take
important decisions
● Tends to be more detailed
● Not subject to any regulations as they are for internal business use
● Prepared when are required by managers
, ● Can be used for budgeting or future planning
● Reports include opportunities, risk, analysis
- Financial
● information used by external shareholders i.e government, investors, employees
● Shows the big picture (overview)
● Reports are subject to regulatory framework set down by laws
● Prepared on an annual basis
● Tends to summarise historic information
● Only quantitative capital (monetary valued items) included in reports
- Key aspects:
● Identifying: key financial components of an organisation i.e assets, liabilities
● Measuring: the monetary value of key components of an organisation in a way
that represents its true value
● Communicating: the financial information in ways that are useful to the users of
that information
- Strategic management process
1.Establish mission and objectives
2.Undertake a position analysis
3.Identify and assess the strategic options
4.Select strategic options and plan ahead
5.Preform review and control
Accounting concepts
Accounting assumptions & characteristics & concepts
- Assumptions
● going concern (accountants assume unless there is evidence that the company
is not going broke - continuity)
● Accrual/matching (income should be properly matched with the expenses of a
given accounting period)
- Characteristics
● Understandability; easy to understand with basic skills
● Relevance; has to be useful in context
● Reliability; truthful, accurate and verifiable
● Comparability; comparable in performance over time
- Concepts:
● Prudence: profits are not recognised until a sale has been complete
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