Lecture 1 – Introduction to Management Accounting
Accounting: the process of identifying, measuring and communicating economic information to
permit informed judgements and decisions by users of the information.
Management accounting: For Planning & Control
o Cost allocation for inventory valuation and
profit measures
o Relevant information for decision makers
o Information for planning, control and
performance management
Financial accounting: External financial reporting
o Cost allocation for inventory valuation and
profit measures
o True and fair view on financial position that
is uniform and consistent
o Decision making of external stakeholders
Costs: sacrifices of assets which are unavoidable,
measurable and foreseeable
Different costs for different purposes!
Lecture 2: Financial Statements and Analysis
The balance sheet: states what the firm owns (assets) and how it is financed (liabilities and
stockholder’s equity) on a particular date.
Consists of:
o Current assets
o Fixed assets
o Current liabilities
o Long-term liabilities (debt)
o Stockholder’s equity
Accounting Liquidity: refers to the ease and quickness with which assets can be turned into cash
The more liquid a firm’s assets, the less likely the firm is to experience problems meeting
short-term obligations
Liquid assets frequently have lower rates of return than fixed assets
The income statement measures performance over a specific period of time
Income = Revenue – Expenses
o Revenue is the value of the products sold
o Expenses are those incurred in generating that revenue
The statement of cash flows: helps explain the change in ‘cash and equivalents’
Cash flow from operating, investing & financing activities
Financial ratios:
Short term solvency (=liquidity): the ability of the firm to meet its short term obligations
, o NWC, current ratio, quick ratio
Activity: the ability of the firm to control its investments in assets
o Total assets turnover, receivables turnover, average collection period, inventory
turnover, days in inventory
Financial leverage (=solvency): the extend to which a firm relies on debt financing
o Debt ratio, debt-equity ratio, equity multiplier, interest coverage
Profitability: the extend to which a firm is profitable
o Net profit margin, gross profit margin, net return on assets (ROAnet), gross return on
assets (ROAgross), return on equity (ROE)
o Pay out ratio, retention ratio, sustainable growth rate (ROE * retention ratio)
Market value: the value of the firm
o Price-to-earnings (P/E) ratio, dividend yield, market-to-book value (M/V) ratio,
Tobin’s Q ratio
Lecture 3 – Cost assignment
Cost assignment (allocation): process of allocating costs when the quantity consumed by a particular
cost object cannot be directly measured.
Cost centre: location to which costs are assigned, also known as cost pool
Cost object: any activity for which a separate measurement of cost is desired
Variable – Absorption costing
Lecture 4: Strategic cost management &
Strategic performance management
Cost of quality report:
Costs of quality conformance
o Prevention costs (training)
o Appraisal costs (quality audits)
Cost of non-conformance
o Internal failure costs (downtime) Just read the slides of this lecture
o External failure costs (complaints)
Value chain: linked set of value creating activities from supplier to customer
The Balanced
Scorecard (BSC):
links
performance to
an organization’s
strategy
Accounting: the process of identifying, measuring and communicating economic information to
permit informed judgements and decisions by users of the information.
Management accounting: For Planning & Control
o Cost allocation for inventory valuation and
profit measures
o Relevant information for decision makers
o Information for planning, control and
performance management
Financial accounting: External financial reporting
o Cost allocation for inventory valuation and
profit measures
o True and fair view on financial position that
is uniform and consistent
o Decision making of external stakeholders
Costs: sacrifices of assets which are unavoidable,
measurable and foreseeable
Different costs for different purposes!
Lecture 2: Financial Statements and Analysis
The balance sheet: states what the firm owns (assets) and how it is financed (liabilities and
stockholder’s equity) on a particular date.
Consists of:
o Current assets
o Fixed assets
o Current liabilities
o Long-term liabilities (debt)
o Stockholder’s equity
Accounting Liquidity: refers to the ease and quickness with which assets can be turned into cash
The more liquid a firm’s assets, the less likely the firm is to experience problems meeting
short-term obligations
Liquid assets frequently have lower rates of return than fixed assets
The income statement measures performance over a specific period of time
Income = Revenue – Expenses
o Revenue is the value of the products sold
o Expenses are those incurred in generating that revenue
The statement of cash flows: helps explain the change in ‘cash and equivalents’
Cash flow from operating, investing & financing activities
Financial ratios:
Short term solvency (=liquidity): the ability of the firm to meet its short term obligations
, o NWC, current ratio, quick ratio
Activity: the ability of the firm to control its investments in assets
o Total assets turnover, receivables turnover, average collection period, inventory
turnover, days in inventory
Financial leverage (=solvency): the extend to which a firm relies on debt financing
o Debt ratio, debt-equity ratio, equity multiplier, interest coverage
Profitability: the extend to which a firm is profitable
o Net profit margin, gross profit margin, net return on assets (ROAnet), gross return on
assets (ROAgross), return on equity (ROE)
o Pay out ratio, retention ratio, sustainable growth rate (ROE * retention ratio)
Market value: the value of the firm
o Price-to-earnings (P/E) ratio, dividend yield, market-to-book value (M/V) ratio,
Tobin’s Q ratio
Lecture 3 – Cost assignment
Cost assignment (allocation): process of allocating costs when the quantity consumed by a particular
cost object cannot be directly measured.
Cost centre: location to which costs are assigned, also known as cost pool
Cost object: any activity for which a separate measurement of cost is desired
Variable – Absorption costing
Lecture 4: Strategic cost management &
Strategic performance management
Cost of quality report:
Costs of quality conformance
o Prevention costs (training)
o Appraisal costs (quality audits)
Cost of non-conformance
o Internal failure costs (downtime) Just read the slides of this lecture
o External failure costs (complaints)
Value chain: linked set of value creating activities from supplier to customer
The Balanced
Scorecard (BSC):
links
performance to
an organization’s
strategy
