Management Accounting
A Value Added Discipline
Financial and Managerial
Accounting Distinguished
Objectives of Chapter 1
 Comparison
of Financial Accounting with
Managerial Accounting
 Distinguish Product Costs From Period
Costs
 To Understand Financial Statement effects
of Product Costs and Period Costs
Financial/Managerial Accounting
Features
Financial Acctg
Managerial Acctg
User Types
Outside (External)
Inside (Internal)
Level of
Aggregation
Regulation
Global (Entire
Company)
FASB; GAAP; SEC
Characteristics
Time Horizon
Objective, reliable, Estimates and
consistent,
projections
historical
Historical
Present & Future
Reporting Freq
Periodic; Years, etc
Detailed or
subunits
Value-Added
Continuous
Product Costs Vs Period Costs
Type of Cost
Product Costs
Period Costs
Assets
Expenses
Inventory
Cost of Goods
Sold
Expenses
Product Costs are inventories first, then expensed when the
product is sold; Period Costs are expensed whenever
incurred
What are Product Costs?
 Manufacturing



Direct Materials such as wood, metal, shingles
Direct Labor incurred in producing the product
Indirect manufacturing costs such as supervisory
salaries, machine maintenance, and supplies
 Service



Firm
Firm
Some few will have direct materials (plumber)
Direct Labor
Indirect production costs
 Indirect
costs in both types of firms are known
as overhead
Financial Statement Effects
 Product
Costs will first increase an asset
account (Inventories) and then increase
and expense account (Cost of Goods
Sold) when products are sold

It is important when building inventories to be
specific in determining your per unit cost
(Cost Accounting) as not all inventoried
products are sold during the period they were
made
 Period
costs increase expenses whenever
they are made