[ Class One ]
★ Accounting is an information sys. tht records, aggregates, and reports transactions (econ
events)
★ Earnings manipulation: companies have a lot of incentive to inflate #’s
★ Branches of Accounting
○ Financial Accounting (external) → public transactions by firm, focused on past
○ Managerial Accounting (internal) → decision making & control
○ Tax - personal & corporate tax
○ Audit - independent accountant that assures a companies financials are accurate
★ Financial Acc.
○ Obj: provide decision useful info to outsiders
○ 4 main financial statements - balance sheet, income statement, statement of
cash flows, statement of stockholder’s equity (retained earnings)
★ Balance Sheet:
○ Tells current state of company @ point in time
○ “Snapshot”
○ Reports assets, liabilities, & equities
★ Income Statement
○ Over period of time (usually ¼ or yr)
○ Reports revenues & expenses
Revenues - Cost = Profits / Losses
★ Asset → resource own w a high likelihood & expect future benefit
○ EX: cash, accounts receivable (credit, we owe company, future econ benefit),
inventory (raw materials, working process, finished goods )
★ Liability → future sacrifice
○ EX: accounts payable (credit, company owes money), long term debt
★ Revenue (top line) → inc. net assets by sales ovr period of time
○ EX: sales
★ Expense → asset reduction in hope of generative rev
○ EX: research & development, advertising, Cost of Goods Sold (COGS), Selling
General & Administrative Expenses (SG&A)
★ Inventory → specific asset on balance sheet, rolls over
★ Gross Margin / Gross Profit → shows firm’s ability to make money
○ GP = Sales - Cost of Goods Sold
○ GP = Revenue - COGS
○ Ratio will show for evry dollar on revenue, how much rev. u generate
★ Net Income (bottom line) [revenue - expenses]
○ Links Income Statement & Balance Sheet
★ Accounting Equation: What you Own = What you Owe + Rest
★ Assets = Liabilities + Owners’ Equity (A = L + E)
, ★ Managerial Accounting / Cost Accounting → process of identifying, measuring,
analyzing, interpreting, and communicating info info
○ How does ^ add value? - by planning, implementing, and controlling → leads to
bttr decisions
○ Links resources to people
[ Class Two ]
★ How does Managerial Accounting add value?
○ Planning: establish goals, objectives, and way to achieve the goals
■ Budget → plan in monetary terms
■ Who is my target customer? What resources do I need?
○ Implementing: plan into action
■ How many employees to hire? How should I pay them?
○ Controlling: keep track and if need action to achieve objectives
■ How to measure performance? Which measures matter?
★ Managerial vs. Financial Accounting
○ Diff. user groups
■ M - internal decision making
■ F - company’s performance to external parties
○ Time period
■ M - project future operations
■ F - report past operations
○ Guiding standards
■ M not bound by external rules (subjective depending on company)
■ F bound by GAAP (generally accepted accounting principles) (objective)
1. Which of the following statements best describes the difference between financial
accounting and managerial accounting?
a. Managerial accounting targets external stakeholders while financial accounting
targets individuals within the company
b. Financial accounting relies more on subjective, future-oriented information than
managerial accounting does
c. A major focus of managerial accounting is the preparation of the income
statement, while a major focus of financial accounting is the preparation of the
budget.
d. Managerial accounting tends to focus on relevant, subjective, and future-oriented
information while financial accounting relies primarily on objective, reliable, and
historical information
2. Which of the following statement(s) regarding the key management functions is true?
, a. Planning involves setting long-term objectives and the short-term tactics
necessary to achieve those objectives
b. Implementing involves comparing actual results to planned objectives and
making adjustments as necessary
c. Controlling includes all of the operational decisions made to implement the plan
d. All the statements are true
★ Summary (Managerial Accounting Studies)
○ Help make bttr decisions (centralized)
○ Help others make bttr decisions (decentralized)
■ “Goal congruence”
■ Incentives
★ Target Audience
○ Consultants
○ General managers
○ Accountants
○ Private equity / Investor (Mark Cuban)
○ Analysts / Investment bankers: understand operations
★ Careers in Accounting
○ Public (portfolio of clients) / Private (work for company)
○ EX of private roles: controller, treasurer, internal auditor
○ EX of private activities: evaluate outsourcing decision, analyze customer
profitability
★ Key Managerial Accounting Concepts
○ Types of businesses models
■ Service - simpler & easier to account for
■ Merchandising
■ Manufacturing - easier to visualize costs & activities
★ Manufacturing = convert materias to a finished product through machinery & labor
★ Merchandising = purchase finished products from a manufacturer
★ Service = not make / sell tangible product
★ Cost Terminology
○ Direct / Indirect
■ D: can be traced back to unit of product (cost of materials or labor)
■ I: cannot be easily traced (advertising, cost of utilities)
○ Variable / Fixed
■ V: change in direct proportion to changes in activity
■ Variable cost goes up, than becomes constant
, ■
■ F: do not change in total regardless of activity, avg / per unit vary
inversely w/ # of units produced
■ Total fixed cost goes straight unless more production and unit fixed cost
goes down
■
○ Manufacturing / Non-Manufacturing
■ M: all costs incurred to produce product
● Direct materials - major material inputs that can b phys &
conveniently trace back to final product (EX: dough 4 pizza)
● Direct Labor - “hands-on” cost of labor of people who touch
product (EX: pizza makers)
● Manufacturing Overhead (indirect costs / overhead costs / factory
costs) - all costs other than direct materials/labor (EX:
maintenance, insurance, property tax)
● MC = DM + DL + MO
● Prime Cost “Primary Costs” = DM + DL
● Conversion Cost = DL + Manufacturing Overhead
■ NM
● Marketing / Selling costs - to get order & deliver product
● General & Administrative costs - executive, organizational, clerical
costs
○ Product / Period
★ Accounting is an information sys. tht records, aggregates, and reports transactions (econ
events)
★ Earnings manipulation: companies have a lot of incentive to inflate #’s
★ Branches of Accounting
○ Financial Accounting (external) → public transactions by firm, focused on past
○ Managerial Accounting (internal) → decision making & control
○ Tax - personal & corporate tax
○ Audit - independent accountant that assures a companies financials are accurate
★ Financial Acc.
○ Obj: provide decision useful info to outsiders
○ 4 main financial statements - balance sheet, income statement, statement of
cash flows, statement of stockholder’s equity (retained earnings)
★ Balance Sheet:
○ Tells current state of company @ point in time
○ “Snapshot”
○ Reports assets, liabilities, & equities
★ Income Statement
○ Over period of time (usually ¼ or yr)
○ Reports revenues & expenses
Revenues - Cost = Profits / Losses
★ Asset → resource own w a high likelihood & expect future benefit
○ EX: cash, accounts receivable (credit, we owe company, future econ benefit),
inventory (raw materials, working process, finished goods )
★ Liability → future sacrifice
○ EX: accounts payable (credit, company owes money), long term debt
★ Revenue (top line) → inc. net assets by sales ovr period of time
○ EX: sales
★ Expense → asset reduction in hope of generative rev
○ EX: research & development, advertising, Cost of Goods Sold (COGS), Selling
General & Administrative Expenses (SG&A)
★ Inventory → specific asset on balance sheet, rolls over
★ Gross Margin / Gross Profit → shows firm’s ability to make money
○ GP = Sales - Cost of Goods Sold
○ GP = Revenue - COGS
○ Ratio will show for evry dollar on revenue, how much rev. u generate
★ Net Income (bottom line) [revenue - expenses]
○ Links Income Statement & Balance Sheet
★ Accounting Equation: What you Own = What you Owe + Rest
★ Assets = Liabilities + Owners’ Equity (A = L + E)
, ★ Managerial Accounting / Cost Accounting → process of identifying, measuring,
analyzing, interpreting, and communicating info info
○ How does ^ add value? - by planning, implementing, and controlling → leads to
bttr decisions
○ Links resources to people
[ Class Two ]
★ How does Managerial Accounting add value?
○ Planning: establish goals, objectives, and way to achieve the goals
■ Budget → plan in monetary terms
■ Who is my target customer? What resources do I need?
○ Implementing: plan into action
■ How many employees to hire? How should I pay them?
○ Controlling: keep track and if need action to achieve objectives
■ How to measure performance? Which measures matter?
★ Managerial vs. Financial Accounting
○ Diff. user groups
■ M - internal decision making
■ F - company’s performance to external parties
○ Time period
■ M - project future operations
■ F - report past operations
○ Guiding standards
■ M not bound by external rules (subjective depending on company)
■ F bound by GAAP (generally accepted accounting principles) (objective)
1. Which of the following statements best describes the difference between financial
accounting and managerial accounting?
a. Managerial accounting targets external stakeholders while financial accounting
targets individuals within the company
b. Financial accounting relies more on subjective, future-oriented information than
managerial accounting does
c. A major focus of managerial accounting is the preparation of the income
statement, while a major focus of financial accounting is the preparation of the
budget.
d. Managerial accounting tends to focus on relevant, subjective, and future-oriented
information while financial accounting relies primarily on objective, reliable, and
historical information
2. Which of the following statement(s) regarding the key management functions is true?
, a. Planning involves setting long-term objectives and the short-term tactics
necessary to achieve those objectives
b. Implementing involves comparing actual results to planned objectives and
making adjustments as necessary
c. Controlling includes all of the operational decisions made to implement the plan
d. All the statements are true
★ Summary (Managerial Accounting Studies)
○ Help make bttr decisions (centralized)
○ Help others make bttr decisions (decentralized)
■ “Goal congruence”
■ Incentives
★ Target Audience
○ Consultants
○ General managers
○ Accountants
○ Private equity / Investor (Mark Cuban)
○ Analysts / Investment bankers: understand operations
★ Careers in Accounting
○ Public (portfolio of clients) / Private (work for company)
○ EX of private roles: controller, treasurer, internal auditor
○ EX of private activities: evaluate outsourcing decision, analyze customer
profitability
★ Key Managerial Accounting Concepts
○ Types of businesses models
■ Service - simpler & easier to account for
■ Merchandising
■ Manufacturing - easier to visualize costs & activities
★ Manufacturing = convert materias to a finished product through machinery & labor
★ Merchandising = purchase finished products from a manufacturer
★ Service = not make / sell tangible product
★ Cost Terminology
○ Direct / Indirect
■ D: can be traced back to unit of product (cost of materials or labor)
■ I: cannot be easily traced (advertising, cost of utilities)
○ Variable / Fixed
■ V: change in direct proportion to changes in activity
■ Variable cost goes up, than becomes constant
, ■
■ F: do not change in total regardless of activity, avg / per unit vary
inversely w/ # of units produced
■ Total fixed cost goes straight unless more production and unit fixed cost
goes down
■
○ Manufacturing / Non-Manufacturing
■ M: all costs incurred to produce product
● Direct materials - major material inputs that can b phys &
conveniently trace back to final product (EX: dough 4 pizza)
● Direct Labor - “hands-on” cost of labor of people who touch
product (EX: pizza makers)
● Manufacturing Overhead (indirect costs / overhead costs / factory
costs) - all costs other than direct materials/labor (EX:
maintenance, insurance, property tax)
● MC = DM + DL + MO
● Prime Cost “Primary Costs” = DM + DL
● Conversion Cost = DL + Manufacturing Overhead
■ NM
● Marketing / Selling costs - to get order & deliver product
● General & Administrative costs - executive, organizational, clerical
costs
○ Product / Period
