Extensive summary managerial accounting
,Chapter 16 introduction to managerial accounting
Why is managerial accounting important?
Learning Objective 1 define managerial accounting and understand how it is used
Managerial accounting the field of accounting that focuses on providing information for internal
decision makers. It concentrates on both financial and nonfinancial information. This type of
accounting helps managers make decisions.
Financial accounting the field of accounting that focuses on providing information for external
decision makers. Financial accounting is used to report monetary transactions and prepare financial
statements.
Financial accounting Managerial accounting
Primary users External-investors, creditors, Internal-the company’s managers
and government authorities and employees
Purpose of information Help investors and creditors Help managers and employees plan,
make investment and credit direct, and control operations
decisions
Focus and time Relevant and faithfully Relevant information and focus on
dimension of the representative information and the future. Example: 2018 budget
information focus on the past. Example: prepared in 2017
2017 actual performance
reported in 2018
Rules and restrictions Required to follow Generally Not required to follow GAAP
Accepted Accounting Principles
(GAAP); public companies
required to be audited by an
independent CPA*
Scope of information Summary reports prepared Detailed reports prepared on parts of
primarily on the company as a the company (products,
whole, usually by an departments, territories), often on a
independent CPA daily or weekly basis
Behavioral Concern about adequacy of Concern about how reports will
disclosures; behavioral affect employee behavior
implications are secondary
*CPA, or Certified Public Accountant, is a trusted financial advisor who helps individuals,
businesses, and other organizations plan and reach their financial goals.
Organizational chart shows the relationship between departments and divisions and managers
responsible for each section
Board of directors elected by the stockholders and responsible for developing the strategic goals of a
corporation
Chief Executive Officer (CEO) officer of a company that has ultimate responsibility for implementing
the company’s short and long-term plans. The CEO is elected by the board of directors
, Line position job that is directly involved in providing goods or services to customers for example:
vice presidents - COO, tablet computer manager, software development division manager,
production manager and sales manager.
Staff position job that provides support for line position for example: vice president – CFO, controller
treasurer, and payroll processing manager.
Managerial accounting functions
Planning choosing goals and deciding how to achieve them. Planning requires to look to the
future and establish goals for the business.
Strategic planning involves developing long-term strategies to achieve a company’s goals 3-
10 years
Operational planning focuses on short-term actions dealing with a company’s day-to-day
operations. They are often 1 year in length, but may also span only a week, a month, or a
quarter
Directing running the day-to-day operation of a business. Managers are responsible for
coordinating the company’s activities including purchasing, manufacturing, selling, and also
motivating employees
Controlling monitoring operations and keeping the company on track. It involves comparing
actual results to expected results. Managers will evaluate why the results were different and
if modification or changes need to be made
Ethical standards of managers (The institute of Management Accountants IMA)
Maintain their professional competence
Preserve the confidentiality of the information they handle
Act with integrity and credibility
To resolve ethical dilemmas, if the policies do not result in a resolution the IMA recommends
discussing the ethical situation with:
1. An immediate supervisor
2. An objective advisor
3. If necessary an attorney
