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    CH 01

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    Kanbiro Orkaido
    This document provides an overview of cost and management accounting. It defines accounting as an information system that identifies and communicates economic data to allow for informed decisions. Management accounting specifically measures financial and other information to assist managers in achieving organizational goals, such as strategic planning, resource allocation, cost control, and performance evaluation. While financial accounting follows strict guidelines and reports to external users, management accounting has more flexibility in its systems and reports internally. The roles of management accountants include maintaining accounting records, preparing financial reports, conducting cost and variance analyses, and advising managers to help with decision making.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    CH 01

    Uploaded by

    Kanbiro Orkaido
    37 views6 pages
    This document provides an overview of cost and management accounting. It defines accounting as an information system that identifies and communicates economic data to allow for informed decisions. Management accounting specifically measures financial and other information to assist managers in achieving organizational goals, such as strategic planning, resource allocation, cost control, and performance evaluation. While financial accounting follows strict guidelines and reports to external users, management accounting has more flexibility in its systems and reports internally. The roles of management accountants include maintaining accounting records, preparing financial reports, conducting cost and variance analyses, and advising managers to help with decision making.

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    Cost & management accounting chapter 1

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    ch01

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    This document provides an overview of cost and management accounting. It defines accounting as an information system that identifies and communicates economic data to allow for informed decisions. Management accounting specifically measures financial and other information to assist managers in achieving organizational goals, such as strategic planning, resource allocation, cost control, and performance evaluation. While financial accounting follows strict guidelines and reports to external users, management accounting has more flexibility in its systems and reports internally. The roles of management accountants include maintaining accounting records, preparing financial reports, conducting cost and variance analyses, and advising managers to help with decision making.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    37 views6 pages

    CH 01

    Uploaded by

    Kanbiro Orkaido
    This document provides an overview of cost and management accounting. It defines accounting as an information system that identifies and communicates economic data to allow for informed decisions. Management accounting specifically measures financial and other information to assist managers in achieving organizational goals, such as strategic planning, resource allocation, cost control, and performance evaluation. While financial accounting follows strict guidelines and reports to external users, management accounting has more flexibility in its systems and reports internally. The roles of management accountants include maintaining accounting records, preparing financial reports, conducting cost and variance analyses, and advising managers to help with decision making.

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    © All Rights Reserved
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    of 6

    Chapter One: Introduction to Cost and Management Accounting

    Learning Objectives
     To know purpose of an accounting system
     To understand the role of Management Accounting in an organization
     To differentiate financial Accounting and Management accounting.
     To explore the organization structure and the Management Accountant
     To know functions of Management Accounting
     To know meaning of cost accounting
     Understand what professional ethics means to management accountants

    1.1 Accounting as the system


    Accounting- as defined by American Accounting Association (AAA), is the process of
    identifying, measuring and communicating economic information to permit informed
    judgments and decisions by users of the information.
    Accounting as a language of business can be viewed as an information system that
    provides essential information about economic activities of an entity to various
    individuals and groups.
     Accounting as information system plays an important role in our economic and social
    system. The decisions made by individuals, governments, and other entities determine
    the use of the nation’s scarce resources.
     The goal (objective) of accounting is to: identify record, analyze, report, and interpret
    (communicate) economic data for use by decision makers.

     You know that accounting information is vital for various decision making purposes.
    Among the information that management requires for decision making is cost
    information. Therefore, cost data are usually available to users through an accounting
    system called cost accounting system. Managers usually need summarized information.
    Therefore, the data should be presented in the way the reader understand and uses them
    to make a decision. Accounting information can be reported in different forms
    depending upon the needs of the users.

    Investors, Bankers,
    Identification of users employees, Labor union,
    governmental agencies,
    management, etc.
    suppliers,
    Page 1 of 6
    User’s information
    needs

    Reports
    Economi Accounting (Outputs) User’s decisions
    c data System
    (Input)

    - Investing
    - Financial reports - Approving loans
    - Special reports - Assessing taxes
    - Tax returns - Negotiating labor contracts
    - Regulatory reports - Establishing budgets
    - Management reports - Other decisions

    Exhibit 1.1. Accounting as an Information System

    1.2 The Role of Management Accounting


    Management accounting measures and reports financial information as well as other type
    information that assists managers in fulfilling the goals of the organization. The followings are
    some of the purposes of management accounting.
     Formulating over all strategies and long range plans
     Resource allocation decision such as product and customer emphasis pricing.
     Cost planning and cost control of operations and activities.
     Performance measurement and evaluation.

    1.3 Financial and Management Accounting


    Financial accounting includes all the principles that regulate the accounting for and reporting
    for financial information that must be disclosed to people outside the company,(i.e. to
    stockholders, bankers, creditors, and brokers). In contrast, management accounting exists
    primarily for the benefit of those inside the company, the people who are responsible for its
    operations.

    Many of the procedures and principles that stem from financial accounting also apply to
    management accounting. Depreciation techniques, cash collection and disbursement
    procedures, inventory valuation methods, and the recognition of what is an asset or a liability
    are all essential to the study of management accounting.
    Page 2 of 6
    But, because their output is communicated to different audiences for different reasons,
    financial accountants and management accountants follow different rules. The rules of
    management accounting are somewhat less defined and place fewer restrictions on the
    accountant’s day-to-day activities.

    Comparison of Financial and Management Accounting


    Areas of Comparison Financial Accounting Management Accounting
    1. Primary users of Persons and organization Various levels of internal
    information outside the business entity management

    2. Types of accounting Double entry system Not restricted to double entry


    systems system; any useful system can
    be used
    3. Restrictive guidelines Adherence to GAAP No formal guidelines or
    restrictions, only criterion is
    useful
    4. Units of measurement Historical (past) dollars Any useful monetary
    (historical and future) or
    physical measure such as
    machine hours, labor hours etc
    5. Focal point for analysis Business entity as a whole Various segments of a
    business entity.
    6. Frequency of reporting Periodical on a regular basis Whenever needed; may not be
    on a regular basis
    7. Degree of objectivity Demands objectivity; Heavily subjective for
    historical in nature planning purposes, but
    objective data are used when
    relevant; future in nature.

    1.4 Organization Structure and the Management Accountant


    The management accountant provides a staff function which gives advice and assistance to line
    managers. The accounting or finance department in an organization is lead by a finance officer.
    A finance officer is a senior officer empowered with overseeing the financial operations of an
    organization. If the organization is large, the finance officer can be supported by a controller
    and treasurer. A controller is responsible for preparing the information and report used in both
    managerial and financial accounting.

    CHIEF FINANCE OFFICER'S


    (CFO)

    CONTROLLER'S TREASURER'S

    Page 3 of 6
    Controller Treasurer
     Supervise the accounting  Identify capital needs and search for
    department a source
     Prepare financial statement both for  Manages investment
    insiders and outsiders
     Cost accounting  Responsible for credit policy and
    collection of account
     Budgeting and variance analysis  Short term financing
     Tax planning  Maintain custody of cash and other
    asset
     Data processing

    Responsibilities of Controller and Treasurer

    1.5 Functions of the Management Accountant


    Management accountant performs three functions
    a. Score keeping - accumulating data and reporting reliable result to all levels of the
    management
     Recording sales, purchase and payroll system
     Preparing financial report
     Preparing depreciation schedule
    b. Attention directing – making visible both opportunities and problems on which
    managers need to focus.
     Highlighting rapidly growing market
     Variance analysis and interpretation
     Explaining performance report
    c. Problem solving - comparing analysis to identify the best alternatives in relation to the
    organizations objectives
     Make or buy decision
     Add or drop decision
     Sell at split of or process further decision

    1.6 Cost Accounting


    Cost accounting is the process of accumulating the cost of manufacturing and other functional
    process and identifying these costs with unit produced or some other object. It measures and

    Page 4 of 6
    reports financial and other information s related to the organization’s acquisition or
    consumption of resource.
    Cost accounting is applied in any type of organization but primarily applied in manufacturing
    organization that combine and process raw martial in to finished product.
    Cost accounting provides information for both management accounting and financial
    accounting. It is a subfield of managerial accounting that interfaces with both managerial and
    financial accounting.

    1.7 The Professional Ethics to a Management Accountant


    It's rooted in the IMA's ethical principles of honesty, fairness, objectivity, and responsibility.
    The statement describes specific requirements for management accountants to heed according
    to the IMA's four standards: competence, confidentiality, integrity, and credibility. IMA
    Updates its Ethics Code for Management Accountants

    For the first time in 12 years, the Institute of Management Accountants (IMA) has released an
    updated version of its ethics guidance, statement of ethical professional practice, which takes
    into consideration changes in the management accounting profession and whistleblower
    provisions in the Dodd-Frank Act.

    The newly updated Statement of Ethical Professional Practice, which went into effect on July
    1, 2017 replaces the previous version published in 2005 and reflects changes in the business
    and regulatory environment, as well as the globalization of the management accounting
    profession. It’s rooted in the IMA’s ethical principles of honesty, fairness, objectivity, and
    responsibility. “Being principles-based, the statement aspires to be broadly applicable, easy to
    understand, and helpful for management accountants in their efforts to serve as leaders of
    integrity and ethics,” said Edward Manley, CPA, current chair of the IMA Committee on
    Ethics.

    The specific standards requirements include:

    1. Competence. Enhance knowledge and skills, perform professional duties in accordance with
    relevant laws and regulations, and make recommendations that are accurate and timely, and
    recognize and help manage risk.

    2. Confidentiality. Information should be confidential unless disclosure is legally required or


    authorized, let relevant people know the importance of confidential information, and refrain
    from using confidential information in illegal or unethical ways.

    Page 5 of 6
    3. Integrity. Mitigate conflicts of interest or warn of possible conflicts of interest, refrain from
    engaging in any conduct that would prevent the ethical performance of duties, avoid activities
    that would discredit the profession, and place ethics and integrity of the profession above
    personal interests.

    4. Credibility. Communicate fairly and objectively, provide all relevant information that could
    influence a user’s interpretation and understanding of the reports or analyses, report any delays
    or deficiencies in information according to law or the organization’s policies, and communicate
    professional limitations or other constraints that would affect responsible judgment or
    successful performance.

    The revised guidance also notes that IMA members may face unethical issues or behaviors,
    which should be addressed with active resolution. That requires consideration of the risks
    involved and whether there is protection against retaliation.

    Page 6 of 6

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