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Copyright ©2008 Prentice Hall. All rights reserved
1-1
Introduction to Managerial Accounting
Chapter 1
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1-2
Objective 1
Identify managers’ four primary responsibilities
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1-3
Setting goals and objectives
Overseeing day-to-day operations
Evaluating resultsof operations
Managers’ Responsibilities
Directing
Controlling
DecisionMaking
Planning
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1-4
Objective 2
Distinguish financial accounting from managerial accounting
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1-5
Managerial vs Financial Accounting
Issue Managerial Financial
Primary Users Internal External
Purpose of Information
Plan, Direct, Control, Decide
Users make investing and lending decisions
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1-6
Managerial vs Financial Accounting
Issue Managerial Financial
Primary Accounting Product
Internal Reports useful to Management
General Purpose Financial Statements
What is included?
Defined by Management
Determined by GAAP
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1-7
Managerial vs Financial Accounting
Issue Managerial Financial
Underlying Basis of Information
Internal and External Transactions, focus on future
Based on historical transactions with external parties
Emphasis Data must be relevant
Data must be reliable and objective
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1-8
Managerial vs Financial Accounting
Issue Managerial Financial
Business Unit Segments of the business
Company as a whole
Preparation Depends on management needs
Annually and Quarterly
Verification Internal audit External audit
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1-9
Managerial vs Financial Accounting
Issue Managerial Financial
Information Requirements
No requirement SEC requires publicly traded companies to issue audited financial statements
Impact on employee behavior
Careful consideration
Adequacy of disclosure
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1-10
E1-10
a. Companies must follow GAAP in their ____________________ systems.
b. Financial accounting develops reports for external parties, such as __________ and _______________.
c. When managers evaluate the company’s performance compared to the plan, they are performing the __________ role of Management.
financial accounting
controlling
What type of users outside of
the company might utilize
financial information?
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1-11
E1-10
d. __________ are decision makers inside a company.
e. ___________________ provides information on a company’s past performance to external parties.
f. ______________________ systems are not restricted by GAAP but are chosen by comparing the costs versus the benefits of the system.
Managers
Financial accounting
Managerial accounting
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E1-10
g. Choosing goals and the means to achieve them is the __________ function of management.
h. _____________________ systems report on various segments or business units of the company.
i. ____________________ statements of public companies are audited annually by CPAs.
planning
Managerial accounting
Financial accounting
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1-13
Objective 3
Describe organizational structure and the roles and skills required of management
accountants within the organization
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1-14
Organizational Structure
Board of Directors
Chief Executive Officer
Chief Operating Officer
Chief Financial Officer
Vice Presidents of various operations
Treasurer Controller Internal Audit
Audit Committee
Board of Directors
Chief Executive Officer
Chief Operating Officer
Chief Financial Officer
Vice Presidents of various operations
Treasurer Controller Internal Audit
Audit Committee
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1-15
Changing Roles of ManagementAccountants
• Ensuring accurate financial records Helping to design information systems Recording non-routine transactions Making adjustments to financial records
• Planning, analyzing, and interpreting accounting data
• Providing decision support
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Required Skills
• Knowledge of financial and managerial accounting
• Analytical skills
• Knowledge of how a business functions
• Ability to work on a team
• Oral and written communications skills
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1-17
E1-11
a.The _____ and the _____ report to the CEO.
b.The internal audit function reports to the CFO or _______ and the _____________.
c. The __________ is directly responsible for financial accounting, managerial accounting, and tax reporting.
d.The CEO is hired by the______________.
CFO COO
CEOcontroller
audit committee
Board of Directors
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E1-11
e. The __________ is directly responsible for raising capital and investing funds.
f. The __________ is directly responsible for the company’s operations.
g. Managerial accountants often work with __________________________.
h. The subgroup of the board of directors is called the _________________.
treasurer
COO
audit committee
Management accountants
have many skills and need to be
able to work with all areas in the
company.
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1-19
Objective 4
Describe the role of the Institute of Management Accountants (IMA) and use its ethical standards to make reasonable
ethical judgments
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1-20
IMA
• Professional association for management accountants
• Goal Advance Managerial accounting profession through
• Certification• Practice Development• Education• Networking
• Certifications Certified Management Accountant (CMA) Certified Financial Managers (CFM)
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1-21
Summary of Ethical Standards Management Accountants must comply with Four Ethical Standards
Maintain Professional COMPETENCE
Preserve CONFIDENTIALILTY
of Information
Uphold INTEGRITY Perform Duties with CREDIBILITY
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1-22
Steps to Resolve Ethical Dilemmas
• Follow company’s policies for reporting unethical behavior
• If not resolved Discuss with immediate supervisor Discuss with objective advisor/IMA Ethics
counselor Consult an attorney
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1-23
E1-13
a. The ______ is the professional association for management accountants.
b. The institute offers two types of certification – the _____ and _____.
c. The __________ exam focuses on managerial accounting topics, economics, and business finance.
IMA
CMA CFM
CMA
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1-24
E1-13
d. The ______ exam focuses on financial statement analysis, business valuation, risk management, working capital policy, and capital structure.
e. The institute’s monthly publication, called ________________, addresses current topics of interest to management accountants.
CFM
Strategic Finance
CFM
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E1-13
f. The institute says that approximately _____ percent of accountants work inside of organizations, rather than at CPA firms.
85
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1-26
Objective 5
Discuss trends in the business environment
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CEO and CFO - responsible for financial
statements, internal control system,
procedures for financial reporting
Audit committee – independent and should include a financial expert
CPA firms – limited non-audit services for
audit clients and periodic quality
review
Stiffer penalties for white-collar crimes
Sarbanes-Oxley Act of 2002
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1-28
Current Trends
• Shifting economy• Competing in global marketplace• Time-based competition
Advanced Information Systems E-Commerce Just-in-Time Management
• Total Quality Management• ISO Certification• Cost Benefit Analysis
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1-29
Objective 6
Use cost-benefit analysis to make business decisions
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E1-18
1. What are the total costs of adopting JIT?
Employee training $13,500Streamline production process 37,000Supplier identification 8,000Total costs $58,500
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E1-18
2. What are the total benefits of adopting JIT?
Savings in warehouse expenses $97,000Lower spoilage costs 46,000Total benefits $143,000
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E1-18
3. Should Wild Rides adopt JIT? Why or why not?
Expected total benefits $143,000Expected total costs (58,500)Excess of benefits over costs $ 84,500
Wild Rides should adopt JIT because the expected benefits exceed the costs.
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1-33
End of Chapter 1