Finance
Chapter 15
Introduction to managerial accounting
Managerial accounting provides much of the information used for numerous decisions managers
have to make. Accounting information if often classified into two types:
1. Financial accounting
Information is reported at fixed intervals (monthly, quarterly, yearly) in general-purpose
financial statements. These financial statements – income statement, retained earnings
statement, balance sheet, and statement of cash flows- are prepared according to generally
accepted accounting principles (GAAP). These statements are used by external users such as
stakeholders, creditors, government agencies, general public.
2. Managerial accounting
Information is designed to meet the specific needs of a company’s management. General-
purpose financial statements. The information includes the following:
o Historical data, which provide objective measures of past operations
o Estimated data, which provide subjective estimates about future decisions
Management uses both types of information in directing daily operations, planning future
operations and developing business strategies.
In most companies, departments are assigned responsibilities for specific functions or activities. The
departments in a company can be viewed as having either of the following:
1. Line department
Is directly involved in providing goods or services to the customers of the company.
Senior vice president, plant manager, and managing director for example. Individuals in
these positions are responsible for manufacturing and selling products.
2. Staff department
Provides services, assistance, and advice to the departments with line or other staff
responsibilities. A staff department has no direct authority over a line department.
In most companies, the controller is the chief management accounting. The controller’s staff consists
of a variety of other accountants who are responsible for specialized accounting functions such as:
o Systems and procedures
o General accounting
o Budgets and budget analysis
o Special reports and analysis
o Taxes
o Cost accounting
A management process has 5 basic phrases (poets die coole inktvis droog)
, 1. Planning
Management uses planning in developing the company’s goals and translating these goals
into courses of action.
o Strategic planning
Developing long-term actions to achieve the company’s objectives. These long-term
actions are called strategies. 5 to 10 years
o Operational planning
Develops short-term actions for managing the day-to-day operations of the company
2. Directing
The process by which managers run day-to-day operations. An example is a production
supervisor’s efforts to keep the production line moving without interruption.
3. Controlling
Monitoring operating results and comparing actual results with the expected results. This
feedback allows management to isolate areas for further investigation and possible remedial
action. Philosophy of controlling by comparing actual and expected results is called
management by exception.
4. Improving
Feedback is also used by managers to support continuous process improvement. This is the
philosophy of continually improving employees, business processes, and products. The
objective is to eliminate the source of problems in a process.
5. Decision making
Inherent of each of the preceding management processes is decision making.
Nature of manufacturing
Legend’s guitar making process begins when a customer places an order for a guitar. Once the order
is accepted, the manufacturing process begins by obtaining the necessary materials. An employee
then cuts the body and neck of the guitar out of raw materials. Once the wood is cut, the body and
neck are assembled. When this is completed, the guitar is painted and finished.
A cost is a payment of cash or the commitment to pay cash in the future for the purpose of
generating revenues. For example, cash (or credit) used to purchase equipment is the cost of the
equipment. If equipment is purchased by exchanging assets other than cash, the current market
value of the assets given up is the cost of the equipment purchased.
In managerial accounting, costs are classified according to the decision-making needs of
management. For example, costs are often classified by their relationship to a segment of operations,
called a cost object. A cost object may be a product, a sales territory, a department, or an activity,
such as research and development.
Direct costs are identified with and can be traced to a cost object. The cost of wood
