Chapter 1: Introduction to Managerial Accounting

Chapter 1: introduction to managerial accounting
KEY TERMS OBJECTIVES EQUATIONS
-




ACCOUNTING IS THE LANGUAGE BUSINESS. PRIMARY GOAL OF ANY ACCOUNTING SYSTEM IS TO CAPTURE, SUMMARIZE, AND REPORT USEFUL INFORMATION TO
USERS SO THEY CAN MAKE DECISIONS. MANAGERIAL ACCOUNTING IS ALL ABOUT DECISION MAKING. KEY QUESTION IS HOW MANAGERS USE ACCOUNTING AND
OTHER RELEVANT INFORMATION TO MAKE SOUND BUSINESS DECISIONS.

MAIN DIFFERENCE: WHO USES THE
Vocab Bank
INFO AND WHY
• Financial Accounting: Accounting
FINANCIAL V.S. MANAGERIAL ACCOUNTING
area focused on providing
FINANCIAL = OUTSIDERS
MANAGERIAL = INSIDERS
financial information to external
users such as investors, creditors,
PLAN-IMPLEMENT-CONTROL CYCLE and regulators.
• Managerial Accounting:
Accounting area focused on
providing information to assist
business owners and managers
in making business decisions.
• Manufacturing firms: Companies
that purchase raw materials and
use them to make a finished
product to sell to wholesalers,
retailers, or customers.
• Merchandising Companies: sell
the goods that manufacturers
produce
• Service Companies: provide a
service to customers/clients.
• Planning: future-oriented phase
of the management cycle that
involves setting long-term goals
Types of organizations What happens during each stage: and objectives and short-term
• Manufacturing firms: purchases raw materials from supplies and 1. planning: establish goals or objectives, along with tactics tactics necessary to achieve those
convert into finish product (make stuff) that will be used to achieve those goals goals.
- who (target customer) (needed resources) • Budget: quantification of the
• Merchandising companies: sells good that manufacturers produce
-what ( product/service needed) resources and expenditures that
(sell stuff)
will be required during a given
2 types: - how (much will they pay)
period of time to achieve a plan.
wholesalers: sell exclusively to other businesses - when/where (to provide Product/services) • Implementing: The stage that
retailers: sell to consumers or the general public budget is created after these questions are answered involves putting the plan into
• Service companies: provide a service to customers/clients 2. implementing: putting plan into action action.
- managers lead, direct, and motivate others to • Controlling: Final step that
achieve the objectives involves monitoring actual
- decisions made during this stage are sometimes
results to see whether the
objectives set in the planning
called operational decisions
state are being met.
-these decisions include but are not limited to: • Sustainability: The ability to meet
-who should I purchase supplies from? the needs of today without
-how many employees should I hire? sacrificing the ability of future
-how should I pay them? generations to meet their own
-how do I train them? needs.
• Triple Bottom Line: a tool used in
managerial accounting system should provide useful
sustainability accounting that
information to help answer these and other questions measures performance in three
3. Controlling: (final step) Managers keep track of how areas: Economic, Societal, and
they are doing and whether actions must be taken to adjust Environmental (also called the
the plan "3Ps: People, Profit, and Planet")

, Chapter 1: introduction to managerial accounting
KEY TERMS OBJECTIVES EQUATIONS
IT IS IMPORTANT TO NOTE THAT MANAGERIAL ACCOUNTING INFORMATION IS VITAL TO NONPROFIT ORGANIZATIONS, INCLUDING HOSPITALS, Vocab Bank
UNIVERSITIES, AND CHARITABLE ORGANIZATIONS. • 3Ps: People, Profit, Planet: Phrase
used in sustainability accounting
to represent the three factors in
ACCOUNTANTS PLAY A KEY ROLE
the triple bottom line: people,
IN HELPING ORGANIZATIONS profit, and planet.
DESIGN ESG METRICS AND • ESG; acronym for
Environmental, Social and
MONITOR PERFORMANCE Governance. It represents the set
of criteria or metrics used to
measure a company's
THE 3 COMPONENTS OF ESG environmental, social, and
ROUGHLY CORRESPONDS TO THE governance outcomes.
• Cost object: any item we want to
3 PILLARS OF SUSTAINABILITY
the cost of
• direct costs: can be easily traced
• indirect costs: cannot be traced or
eing
bout b
a are not worth the effort
ity is
ai nabil eeds • Manufacturing costs: all of the
Sust y’s n
m e et toda costs associated with producing/
able t
o he
ing t
ardiz manufacturing a physical
t h o u t jeop
wi orrow product
of tom Direct materials: the major
needs •
material inputs that can be
directly and conveniently traced
to each unit of product (the cost
object)
• Direct Labor: "hands on" Labor
that can be directly and
E conveniently traced to the
EASUR product
H ECK/M D JOB
OW W
E C A GOO • Manufacturing overhead: includes
ESG: H IS D OING
INESS all costs other than direct
E BUS
OF T H Y ON materials and direct Labor
ABILIT ENDS
T SU STAIN T R IC S DEP D incurred during the
A IC ME SS AN BIG DATA ANALY TICS: ANALY TICAL TECHNIQUES TO GAIN INSIGHTS
H E SPECIF H E B USINE manufacturing process
(T T
E OF TES.
FROM DATA SO HUGE OR COMPLICATED THAT NORMAL FOOLS LIKE
• Prime costs: direct material and
AT UR
T HE N Y IT OPERA SPREADSHEETS CAN'T HANDLE IT. direct labor
U ST R
D
T HE IN • 4 THINGS THAT MAKE IT "BIG" • Conversion costs: Direct Labor
-VOLUME (HOW BIG) and manufacturing
-VELOCITY (HOW FAST)
THESE 3 V'S IS WHAT • Nonmanufacturing costs: the
MAKES "BIG DATA"
costs associated with running the
• OPERATING A BUSINESS THAT MEETS -VARIETY (HOW DIFFERENT) DIFFERENT THAN
"NORMAL" DATA
business and selling the product
-VERACITY (HOW TRUE) (not manufacturing the product)
THE ECONOMIC, SOCIAL, AND
• Marketing/selling expenses:
ENVIRONMENTAL NEEDS OF THE PRESENT incurred to get the final product
DECISION ANALY TICS: USES DATA TO MAKE to the customer
WHILE ALLOWING THE BUSINESS TO SURVIVE/ MORE INFORMED BUSINESS DECISIONS • General/administrative
• 3 COMMON TYPES OF ANALY TICS expenses: expenses of running
THRIVE IN THE LONG-RUN
1. DESCRIPTIVE ANALY TICS: WHAT
the overall business
• Product costs: costs assigned to
HAPPENED
the product as it is being
2. PREDICTIVE ANALY TICS: WHAT WILL manufactured
HAPPEN • Inventoriable costs: product costs
3. PRESCRIPTIVE ANALY TICS: WHAT • Period costs: nonmanufacturing
SHOULD WE DO costs expensed during period
incurred