Principles of Accounting, Volume 2: Managerial Accounting Chapter 1 ACCOUNTING AS A TOOL FOR MANAGERS PowerPoint Image Slideshow Chapter Outline • 1.1 Define Managerial Accounting and Identify the Three Primary Responsibilities of Management • 1.2 Distinguish between Financial and Managerial Accounting • 1.3 Explain the Primary Roles and Skills Required of Managerial Accountants • 1.4 Describe the Role of the Institute of Management Accountants and the Use of Ethical Standards • 1.5 Describe Trends in Today’s Business Environment and Analyze Their Impact on Accounting Module 1.1 Define Managerial Accounting and Identify the Three Primary Responsibilities of Management Managerial accounting is the process that allows decision makers to set and evaluate business goals by determining what information they need to make a particular decision and how to analyze and communicate this information. Figure 1.2 One of the first items on a new company’s agenda is the creation of a mission statement. A mission statement is a short statement of a company’s purpose and focus. This statement should be broad enough that it will encompass future growth and changes of the company. Google’s mission statement is “Our mission is to organize the world’s information and make it universally accessible and useful.” The Process of Adhering to the Mission Statement. (attribution: Copyright Rice University, OpenStax, under CC-BY-NC-SA 4.0 license) Three Primary Responsibilities of Management • Planning is the process of setting goals, or what the company expects to accomplish over time, and objectives, or the targets that need to be met in order to meet the company’s goals. • Controlling involves the monitoring of the planning objectives that were put into place. • Evaluating, also called assessing or analyzing, involves comparing actual results against expected results, and it can occur at the product, department, division, and company levels. Your Turn: Evaluating On-Campus versus Off-Campus Living The principal purpose of managerial accounting is to deliver information useful for management decision-making. Many of the techniques used in managerial accounting are useful for decisions in your everyday life. In choosing whether to live on campus or off campus, how might you use planning, controlling, and evaluating in your decision-making process? What types of financial and nonfinancial information might you need? Module 1.2 Distinguish between Financial and Managerial Accounting Financial and Managerial Accounting Comparative: Figure 1.4 Comparing Reports between Financial and Managerial Accounting. (attribution: Copyright Rice University, OpenStax, under CC-BY-NC-SA 4.0 license) Figure 1.3 This type of analysis is an example of one of the many functions of managerial accounting: tracking costs. This helps the company determine which products to produce, how many of each to produce and the price to charge. Material Cost Analysis. Daryn’s Dairy materials cost comparison analysis between best-selling standard vanilla ice cream and Very Berry Biscotti, a limited-edition specialty ice cream. (attribution: Copyright Rice University, OpenStax, CC-BY-NC-SA 4.0 license) Sample Exercise EA5. Taylor Speedy has prepared the following list of statements about managerial accounting, financial accounting, and the functions of management. Identify each statement as true or false. A. Financial accounting centers on providing information to internal users. B. Staff positions are directly involved in the company’s primary revenue-generating activities. C. Preparation of budgets is part of financial accounting. D. Managerial accounting applies only to merchandising and manufacturing companies. E. Both managerial accounting and financial accounting deal with many of the same economic events. Module 1.3 Explain the Primary Roles and Skills Required of Managerial Accountants Because managerial accountants play a different role than financial accountants, it is important to see where managerial accountants fit into the organizational structure and the types of jobs and certifications that they may obtain. Figure 1.7 Sample Organizational Chart. (attribution: Copyright Rice University, OpenStax, under CC-BY-NCSA 4.0 license) Figure 1.8 There are many jobs that an accountant, either financial or managerial, can obtain upon graduation. These positions open the door to many upper-level management opportunities as shown in this chart. Accounting Position Salaries. Salaries are shown for some entry-level and advanced-level jobs available with an accounting degree. (attribution: Copyright Rice University, OpenStax, under CC-BY-NC-SA 4.0 license) Common Accounting Certifications • Certified Public Accountant (CPA) • Certified Management Accountant (CMA) • Certified Financial Analyst (CFA) • Certified Internal Auditor (CIA) • Enrolled Agent (EA) • Certified Fraud Examiner (CFE) • Certified Government Auditing Professional (CGAP) Module 1.4 Describe the Role of the Institute of Management Accountants and the Use of Ethical Standards The Institute of Management Accountants (IMA), the professional organization for management accountants, provides research, education, a means of knowledge sharing, and practice development to its members. • The IMA issues the Certified Management Accountant (CMA) certification. The CMA exam covers essential managerial accounting topics, as well as topics on economics and finance. • The IMA also develops standards and principles to help management accountants deal with ethical challenges. • The IMA has its own Statement of Ethical Professional Practice for its members. Ethics Legislation In response to several corporate scandals, the United States Congress passed the Sarbanes-Oxley Act of 2002 (SOX), also known as the “public company accounting reform.” • It is a federal law that was a far-reaching reform of business practices. • Its focus is primarily on public accounting firms that act as auditors of publicly traded corporations. • The act intended to protect investors by enhancing the accuracy and reliability of corporate financial statements and disclosures. • Thousands of corporations now must confirm that their accounting processes comply with SOX. Module 1.5 Describe Trends in Today’s Business Environment and Analyze Their Impact on Accounting • Enterprise Resource Planning (ERP) helps companies streamline their operations and helps management respond quickly to change. Although they are expensive, these systems help alleviate the complications that arise from business systems that do not coordinate with one another. • Automation is a method of using systems, such as computers or robots, to operate different processes and machinery to improve efficiencies and lower direct labor costs. Companies use automation to remove the complex, superfluous stages from a process in order to streamline the practice. • Outsourcing is hiring workers outside of the company who perform their tasks inside or outside of the country. Figure 1.11 Eight Primary Components of Enterprise Resource Planning (ERP). The diagram shows the role of ERP in streamlining a business by coordinating the various components of that business. (attribution: Copyright Rice University, OpenStax, under CC-BY-NC-SA 4.0 license) Other Trends • Lean Production • A lean business model is one in which a company strives to eliminate waste in its products, services, and processes, while still fulfilling the company’s mission. • Balanced Scorecard • The balanced scorecard (BSC) approach uses both financial and nonfinancial measures in evaluating all attributes of the organization’s procedures. • Globalization • Globalization is the development of business through international influence or extending social and cultural aspects around the world. • Social Responsibility and Sustainability • With social responsibility and sustainability, companies make decisions that “meet the needs of the present without compromising the needs of future generations.”1 1. “Sustainable Development.” General Assembly of the United Nations. http://www.un.org/en/ga/president/65/issues/sustdev.shtml Figure 1.12 Kaizen Board Showing Kaizen Process and Some Related Tactics. (credit left: modification of “Woman Standing in Front of Sitting People” by “rawpixel.com”/Pexels, Pexels license / Public Domain; right: modification of “A few kaizen tactics” by Sacha Chua/Flickr, CC BY 2.0) Summary • The purpose of managerial accounting is to supply financial and nonfinancial information to the organization’s management and other internal decision makers. • Primary differences between managerial accounting and financial accounting are: users, types of reports produced, frequency of producing the reports, purpose of the information produced, focus of the reporting information, nature of the original information used to produce the reports, and verification of the data used to create the reports. • Management accountants work with individuals at all levels of an organization from the CEO to the shop floor workers. Skills for managerial accountants include commercial awareness, collaboration, effective communication skills, strong technology talents, extensive analytical abilities, and elevated ethical values. Summary (continued) • The Institute of Management Accountants (IMA), the professional organization for management accountants, issues the Certified Management Accountant (CMA) certification and has its own Statement of Ethical Professional Practice for its members • Changes in business trends such as technological trends, new business practices such as lean practices, the use of evaluation tools such as balanced scorecards, globalization, and the desire for businesses to practice social responsibility and sustainability shape not only how businesses make decisions but how managerial accounting has evolved and will continue to evolve to meet the needs of organizations. This OpenStax ancillary resource is © Rice University under a CC-BY-NC-SA 4.0 International license; it may be reproduced or modified for noncommercial purposes only but must be attributed to OpenStax, Rice University and any changes must be noted. Any adaptation must be shared under the same type of license.
