Summary - Financial & Management Accounting II

SUMMARY – FINANCIAL &
MANAGEMENT ACCOUNTING
II
Exam preparations for Y1Q3




BY: JEFFREY ENGELS

,TABLE OF CONTENT



Lectures & Training Sessions……………………………………………………………………………………………………p.2-p.25

Training Session 1…………………………………………………………………………………………………………p.2+p.3

Training Session 2………………………………………………………………………………………………………….p.4-p.6

Training Session 3…………………………………………………………………………………………………………p.7+p.8

Training Session 4……………………………………………………………………………………………………………….p.9

Training Session 5………………………………………………………………………………………………..……p.10-p.12

Training Session 6……………………………………………………………………………………………….……p.13+p.14

Training Session 7……………………………………………………………………………………….……………p.15+p.16

Training Session 8……………………………………………………………………………………..………………p.17-p.19

Training Session 9…………………………………………………………………………………………………….p.20+p.21

Training Session 10………………………………………………………………………………………………………22+p.24

Training Session 11……………………………………………………………………………………………………………p.25

Book Summaries……………………………………………………………………………………………………………………p.26-p.50

Chapter 5 - Relevant Information for Decision Making with a Focus on Pricing
Decisions……………………………………………………………………………………………………..……………p.26-p.31

Chapter 6 - Relevant Information for Decision Making with a Focus on Operational
Decisions.………………………………………………………………………………………………………………….p.32-p.34

Chapter 7 - Introduction to Budgets and Preparing the Master Budget………….………...p.35-p.42

Chapter 11 - Capital Budgeting…………….…………………………………………………………………..p.43-p.50

Practice test (based on the lectures)……………………………………………………………………………………………..p.51

Answers to the test……………………………………………………………………………………………………………….p.52+p.53




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,Lectures & Training Sessions


Training Session 1


Budgets

A budget provides a comprehensive financial overview of planned company operations. They bring
several benefits to them:

- Budgets provide an opportunity to re-evaluate existing activities and evaluate new ones.
- They aid managers in communicating objectives and coordinating actions across the
organization.
- Budgeting provides benchmarks to evaluate subsequent performance.

There are factors that limit the advantages of budgeting. These include:

1- Low levels of participation in the budget and (due to that) a lack of acceptance of
responsibility for the final budget.
2- Incentives to lie and cheat in the budget process (dysfunctional incentives).
3- Difficulties in obtaining accurate sales forecasts.



➔ Human Relations Problems: Budget acceptance and responsibility

The main factors affecting budget acceptance are the:

1. perceived attitude of top management,
2. the level of participation in the budget process,
3. degree of alignment between the budget and other performance goals.

Management should seek to create an environment where there is a true two-way flow of
information.

Participative budgets are formulated with the active participation of all affected employees. Message
conveyed by the budget system may be misaligned with incentives provided by the compensation
system.



➔ Dysfunctional Incentives: Lying, cheating; Budgetary Slack

Dysfunctional incentives lead managers to make poor decisions. Lying can arise if the budget process
creates incentives to bias the budget information.

Budgetary Slack (budget padding) is the overstatement of budgeted costs (or understatement of
budgeted revenue) to create a goal that is easier to achieve.




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, ➔ Sales Forecasting

A sales forecast is a prediction of sales under a given set of conditions. Sales forecasts are usually
prepared under the direction of the top sales executive.

The sales budget is the result of decisions to create conditions that will generate a desired level of
sales.




Cash Collections

It is easiest to prepare budgeted cash collections at the same time as the sales budget. Cash
collections include the current month’s cash sales plus the previous month’s credit sales.

Example:




Answer:




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