The Nature of Management Accounting: Mcgraw-Hill/Irwin
The Nature of Management Accounting: Mcgraw-Hill/Irwin
The Nature of Management Accounting: Mcgraw-Hill/Irwin
The Nature of
Management
Accounting
15-2
Management Accounting
• Assist managers in formulation and
implementation of organization’s strategy.
• Applies to all organizations.
Use both quantitative and qualitative
information.
Decision-facilitating information.
Decision-influencing information.
15-3
Accounting Jobs
Management accountant:
Responsible for design and operation of
management accounting system.
Certified Management Accountant (CMA)
Professional designation of knowledge of
management accounting principles and
techniques.
15-4
Accounting Jobs
Controller.
Frequently highest level accountant.
Usually has both financial and management
accounting responsibility.
Reports to Chief Financial Officer (CFO).
Treasurer.
Responsible for cash management.
E.g., raising cash when needed by borrowing or
issuing stock and investing excess cash.
15-5
Management Accounting vs.
Financial Accounting
Necessity
Management Accounting Financial Accounting
• Optional. • Required.
• Information’s value • Requirements of
to management. FASB, SEC, IRS, etc.
15-6
Management Accounting vs.
Financial Accounting
Purpose
Management Accounting Financial Accounting
• Produce information • Produce information
for planning, for outside users.
implementing, and
control functions.
15-7
Management Accounting vs.
Financial Accounting
Users
Management Accounting Financial Accounting
• Internal users. • External users.
• Managers. • Shareholders.
• Individuals who • Creditors.
assist in analysis. • Government
agencies.
• etc.
15-8
Management Accounting vs.
Financial Accounting
Underlying Structure
Management Accounting Financial Accounting
• Information to assist • Accounting Equation:
in decision making Assets = Liabilities +
related to: Shareholders’ Equity.
• Measurement.
• Control.
• Alternative choices.
15-9
Management Accounting vs.
Financial Accounting
Source of Principles
Management Accounting Financial Accounting
• Information • GAAP.
usefulness for decision
making.
15-10
Management Accounting vs.
Financial Accounting
Time Orientation
Management Accounting Financial Accounting
• Primarily future • Primarily past
oriented. oriented.
• E.g., forecasts, • Reporting of financial
estimates, plans. history.
• Some historical
information for
predictive value.
15-11
Management Accounting vs.
Financial Accounting
Information Content
Management Accounting Financial Accounting
• Both monetary and • Primarily monetary
nonmonetary events (i.e., accounting
information. transactions).
15-12
Management Accounting vs.
Financial Accounting
Information Precision
Management Accounting Financial Accounting
• Information • Uses some
frequently needed approximations.
quickly. • However, precision
•Precision sometimes usually greater than in
sacrificed for speed in Management
reporting. Accounting.
15-13
Management Accounting vs.
Financial Accounting
Report Frequency
Management Accounting Financial Accounting
• Can be monthly, • Annually with less
weekly, daily, or even detailed interim
more frequently. reports.
• May need real-time
access to information.
15-14
Management Accounting vs.
Financial Accounting
Report Timeliness
Management Accounting Financial Accounting
• Quickly to be useful • Usually, several
for decision making. weeks to months after
fiscal close of
accounting period.
15-15
Management Accounting vs.
Financial Accounting
Report Entity
Management Accounting Financial Accounting
• Usually relatively • Primarily
small parts of the organization as a
organization (e.g., whole.
departments, product
lines, divisions,
subsidiaries, etc.)
15-16
Management Accounting vs.
Financial Accounting
Liability Potential
Management Accounting Financial Accounting
• Little or none • Threat exists when
because reporting and there is misleading
supporting reporting to external
documentation is parties.
internal.
15-17
Similarities
Managerial vs. Financial
Many of same considerations that
make sense for GAAP also make sense
for internal decision making.
Accounting systems usually designed to
provide information for both.
Reports from both are used in decision
making by users.
15-18
Purposes & Uses of Management
Accounting Information
Measurement purpose.
Measurement of revenues, costs, and assets.
Control purpose.
Evaluate operations and (if needed) assign corrective
action to person/organization unit responsible.
Alternative courses of action purpose.
Analyze information and choose best course of
action.
15-19
Characterization of Management
Accounting Information
• Historical information:
– Score keeping (How are we doing?).
– Attention directing (What problems require
looking into?).
• Future estimates:
– Problem solving (What is best way to deal with
a problem?).
– Influencing impact (influences actions of
managers).
15-20
Measurement
• Full cost accounting.
– Measures resources used in performing
some activity.
– Full cost = direct costs + indirect costs.
• Direct costs are costs directly traced to goods
or services.
• Indirect costs are fair share of costs incurred
jointly in producing goods or services.
15-21
Control
• Use of responsibility centers.
– Costs, revenues, and/or assets are
identified to and measured by
responsibility center.
– Actual results are compared to a budget
or benchmark.
– Corrective action taken by person(s)
responsible.
15-22
Alternative Choice Decisions
15-23
Databases
• Spreadsheets:
– Two dimensional arrays of data.
• Database systems:
– More powerful.
– Easily sorts data, links data, manipulates
data, and quickly make reports available to
help in decision making.
15-24
General Observations on
Management Accounting
• Different numbers for different purposes.
• What “cost” are we talking about?
• Historical?, standard?, overhead?, variable?,
differential?, marginal?, opportunity?, direct?,
estimated?, full?, etc.
Accounting numbers are approximations.
Some numbers are more accurate than others.
Working with incomplete data.
Often must make decisions without all pertinent
information.
15-25
General Observations on
Management Accounting
Accounting evidence is only partial evidence.
Other more qualitative factors are also important
in decision making.
People, not numbers, get things done.
How you use the numbers is as important as how
the numbers are produced.
15-26