Summary FBS222 - Chapter 1 - Introduction to Managerial Accounting

FBS 222 CHAPTER 1



Introduction to Managerial Accounting

MEANING
• Managerial accounting = providing accounting information for a company’s
internal users.
• Unlike financial accounting, managerial accounting is not bound by any formal
criteria such as generally accepted accounting principles (GAAP).
• Companies release information to the public through corporate sustainability
reports, social responsibility reports or citizen reports.
o To manage reputation.
• Three broad objectives:
o Planning
o Controlling
o Decision-making




OBJECTIVES
• To provide information for planning the organisation’s actions.
• To provide information for controlling the organisation’s actions.
• To provide information for making effective decisions.



Planning
• The detailed formulation of action to achieve a particular end.
• Requires setting objectives and identifying methods to achieve objectives:

Setting objectives Identifying methods to achieve objectives


• New methods should be clearly specified and detailed.



Controlling
• Managerial activity of monitoring a plan’s implementation and taking
corrective action as needed.


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, FBS 222 CHAPTER 1

• Compare actual performance and expected performance.
o Information used to evaluate/correct steps taken to implement the
plan.
• Can be financial or non-financial in nature.
o Feedback given to managers in the form of performance reports that
compare actual data with planned data/benchmarks.



Decision Making
• The process of choosing amoung competing alternatives.
• Managerial accounting information systems supply information that facilitates
decision making.



FINANCIAL VS MANAGERIAL
ACCOUNTING
Financial Accounting Managerial Accounting
Extremely focused Internally focused
Must follow externally imposed rules No mandatory rules
Objective, financial information Financial and non-financial information,
subjective information possible
Historical orientation Emphasis on the future
Information about the firm as a whole Internal evaluation and decisions based
on very detailed information
More self-contained Broad, multidisciplinary



FINANCIAL ACCOUNTING
• Financial accounting provides historical information for external users such as:
o Investors, creditors, customers, suppliers etc.
• Financial statements must follow rules defined by:
o Securities and Exchange Commission (SEC)
o Financial Accounting Standards Board (FASB)
o International Accounting Standards Board (IASB)
▪ These rules pertain to issues such as: timing of expenses,
recording of assets, recognition of revenues etc.


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