MANAGERIAL FINANCE AND ACCOUNTING
ACCOUNTING
CHAPTER 1 “Introduction to Management Accounting”
Accounting is the process of identifying, measuring and communicating economic
information to permit informed judgements and decisions by users of the information.
It provides both financial and non-financial information.
Accounting communicates economic information to various parties who have interest in
the organization → stakeholders:
- managers require info that assists them in their decision-making and control activities.
- shareholders require info on the value of their investment and the income derived.
- employees require info on the ability of the firm to meet wage demands
- creditors require info on a firm’s ability to meet financial obligations
- government agencies requires info as the details
There are many users of accounting information. This users can be divided in two categories:
- Internal users within the organization
- External users such as shareholders, creditors, regulatory agencies; outside the
organization.
We can distinguish two branches of accounting that reflect the users of the information:
- Management Accounting which is concerned with the provision of information to people
within the organization to help them make better decisions and improve efficiency and
effectiveness of operations. (internal reporting)
- Financial Accounting which is concerned with the provision of information to external
parties outside the organization. (external reporting)
Major differences
Financial Managerial
Legal requirements statutory requirement to optional and info is produced
produce annual financial only if the benefits>costs
accounts
Focus on individual parts or describe the whole business focuses on small parts of the
segments organization
generally accepted must conform with legal not required to adhere to the
accounting principles requirements and generally principles
accepted acc. principles.
Data is verifiable and
objective
Time dimension reports what happened in the concerned with future info as
past well as past
Frequency and precision detailed acc. are published more concerned with
annually; less detailed timeliness than precision,
semi-annually daily basis
, Elements involved in the decision-making, planning and control process:
4. budget and master budget
Control process measures and corrects actual performance and subsequent correction of
performance in an attempt to ensure that the firm’s objectives and plans are achieved.
To monitor performance, the accountant produces performance reports and presents them to
the managers who are responsible for implementing the various decisions.
Maximizing future profits is identified as a major objective for these reasons:
- is unlikely that any other objective is as widely applicable in measuring the ability of the
organization to survive in the future
- is unlikely that maximizing future profits can be realized in practice, but is still important
to establish the principles necessary to achieve this objective.
- It enables shareholders to know how much the pursuit of other goals is costing them by
indicating the amount of cash distributed among the members of the coalition.
The important changes that have taken place in the business environment that have influenced
management accounting practice are:
- globalization of world trade
- deregulation in various industries
- changing product life cycle →is the period of time from initial expenditure on research
and development to the time at which support to customers is withdrawn.
- advances in manufacturing and information technologies → traditional production
systems are being replaced by Lean Manufacturing Systems. IT like e-commerce,
e-business and internet commerce.
- focus on environmental and ethical issues
- greater emphasis on value creation
- need to become more customer driven
ACCOUNTING
CHAPTER 1 “Introduction to Management Accounting”
Accounting is the process of identifying, measuring and communicating economic
information to permit informed judgements and decisions by users of the information.
It provides both financial and non-financial information.
Accounting communicates economic information to various parties who have interest in
the organization → stakeholders:
- managers require info that assists them in their decision-making and control activities.
- shareholders require info on the value of their investment and the income derived.
- employees require info on the ability of the firm to meet wage demands
- creditors require info on a firm’s ability to meet financial obligations
- government agencies requires info as the details
There are many users of accounting information. This users can be divided in two categories:
- Internal users within the organization
- External users such as shareholders, creditors, regulatory agencies; outside the
organization.
We can distinguish two branches of accounting that reflect the users of the information:
- Management Accounting which is concerned with the provision of information to people
within the organization to help them make better decisions and improve efficiency and
effectiveness of operations. (internal reporting)
- Financial Accounting which is concerned with the provision of information to external
parties outside the organization. (external reporting)
Major differences
Financial Managerial
Legal requirements statutory requirement to optional and info is produced
produce annual financial only if the benefits>costs
accounts
Focus on individual parts or describe the whole business focuses on small parts of the
segments organization
generally accepted must conform with legal not required to adhere to the
accounting principles requirements and generally principles
accepted acc. principles.
Data is verifiable and
objective
Time dimension reports what happened in the concerned with future info as
past well as past
Frequency and precision detailed acc. are published more concerned with
annually; less detailed timeliness than precision,
semi-annually daily basis
, Elements involved in the decision-making, planning and control process:
4. budget and master budget
Control process measures and corrects actual performance and subsequent correction of
performance in an attempt to ensure that the firm’s objectives and plans are achieved.
To monitor performance, the accountant produces performance reports and presents them to
the managers who are responsible for implementing the various decisions.
Maximizing future profits is identified as a major objective for these reasons:
- is unlikely that any other objective is as widely applicable in measuring the ability of the
organization to survive in the future
- is unlikely that maximizing future profits can be realized in practice, but is still important
to establish the principles necessary to achieve this objective.
- It enables shareholders to know how much the pursuit of other goals is costing them by
indicating the amount of cash distributed among the members of the coalition.
The important changes that have taken place in the business environment that have influenced
management accounting practice are:
- globalization of world trade
- deregulation in various industries
- changing product life cycle →is the period of time from initial expenditure on research
and development to the time at which support to customers is withdrawn.
- advances in manufacturing and information technologies → traditional production
systems are being replaced by Lean Manufacturing Systems. IT like e-commerce,
e-business and internet commerce.
- focus on environmental and ethical issues
- greater emphasis on value creation
- need to become more customer driven
