Introduction to Managerial Accounting.docx
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Introduction to Managerial Accounting.docx
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IntroductiontoManagerialAccounting
chapter17
IntroductiontoManagerialAccounting
goals discussion goalsachievement fillintheblanks multiplechoice problems checklistandkeyterms
GOALS
Yourgoalsforthis"managerialaccountingintroduction"chapteraretolearnabout:
∙Thedistinguishingcharacteristicsofmanagerialaccounting.
∙Theroleofmanagerialaccountinginsupportofplanning,directing,andcontrolling.
∙Keyproductioncostcomponents:
directmaterials,directlabor,andfactoryoverhead.
∙Productcostsversusperiodcosts.
∙Categoriesofinventoryformanufacturersandrelatedfinancialstatementimplications.
DISCUSSION
MANAGERIALACCOUNTING
FINANCIALVS.MANAGERIALACCOUNTING:
Earlyportionsofthistextbookdealtmostlywithfinancialaccounting. Financialaccountingisconcernedwithreportingtoexternalpartiessuchasowners,analysts,andcreditors. Theseexternalusersrarelyhaveaccesstotheinformationthatisinternaltotheorganization,nordotheyspecifytheexactinformationthatwillbepresented. Instead,theymustrelyonthegeneralreportspresentedbythecompany. Therefore,thereportingstructureiswelldefinedandstandardized. Themethodsofpreparationandthereportspresentedaregovernedbyrulesofvariousstandard-settingorganizations. Furthermore,theexternalusersgenerallyseeonlythesummarizedoraggregateddataforanentity.
Incontrast,managersofaspecificbusinessoftentimesneedordesirefarmoredetailedinformation. Thisinformationmustbetailoredtospecificdecision-makingtasksofmanagers,anditsstructurebecomesmore"freeformed." Suchmanagerialaccountinginformationtendstobefocusedonproducts,departments,andactivities. Inthiscontext,themanagementprocessisintendedtobeabroadreferencetoencompassmarketing,finance,andotherdisciplines. Simplysimply:
managerialaccountingisaboutprovidinginformationinsupportoftheinternalmanagementprocesses. Manyorganizationsrefertotheirinternalaccountingunitsasdepartmentsofstrategicfinance. Thistitleisperhapsmorereflectiveoftheirwiderangeandscopeofduties.
Managerialaccountingisquitedifferentfromfinancialaccounting. Externalreportingrulesarereplacedbyinternalspecificationsastohowdataaretobeaccumulatedandpresented. Hopefully,theseinternalspecificationsaresufficientlylogicalthattheyenablegoodeconomicdecisionmaking. Forexample,specificreportingperiodsmaybereplacedwithaccesstoreal-timedatathatenablequickresponsestochangingconditions. And,forecastedoutcomesbecomemorecriticalforplanningpurposes. Likewise,costinformationshouldbedisseminatedinawaythatmanagerscanfocuson(andbeheldaccountablefor!
) thosebusinesscomponents("segments")undertheirlocusofcontrol.
Inshort,theremainderofthisbookisabouttheideasandmethodsthatcanbeusedtoprovideaccountinginformationindirectsupportofthe"broadlydefined"roleofmanagingabusinessorganization. Ifyouaspiretoworkinstrategicfinance,theremainderofthisbookisyourintroductoryprimer. But,formostreaders--thosewhomustmanagesomepartofanorganization-- theremainderofthisbookisyourguidetoknowinghowandwhenthemanagementaccountant'stoolscanbeusedtohelpyoudoyourjobbetter!
PROFESSIONALCERTIFICATIONSINMANAGEMENTACCOUNTING:
YouarelikelyfamiliarwiththeCPA(certifiedpublicaccountant)designation;itiswidelyheldandrecognized. Thecertificationisusuallyaccompaniedbyastateissuedlicensetopracticepublicaccounting. However,therearealso CMA (certifiedmanagementaccountant)and CFM (certifiedfinancialmanager)designations. Thesearenot"licenses,"perse,butdorepresentsignificantcompetencyinmanagerialaccountingandfinancialmanagementskills. Thesecertificationsaresponsoredbythe InstituteofManagementAccountants.
PLANNING,DIRECTING,ANDCONTROLLING
THEROLEOFMANAGEMENT:
Ioncesawacleversignhangingonthewallofabusinessestablishment:
''ManagersarePaidtoManage--IfThereWereNoProblemsWeWouldn'tNeedManagers." Thissuggestedthatallorganizationshaveproblems,anditismanagement'sresponsibilitytodealwiththem. Whilethereissometruthtothischaracterization,itisperhapsmorereflectiveofa"notsoimpressive"organizationthatismovingfromonecrisistoanother. Truemanagerialtalentgoesbeyondjustdealingwiththeproblemsathand.
Whatdoesitmeantomanage?
Managingrequiresnumerousskillsets. Amongthoseskillsarevision,leadership,andtheabilitytoprocureandmobilizefinancialandhumanresources. Allofthesetasksmustbeexecutedwithanunderstandingofhowactionsinfluencehumanbehaviorwithin,andexternalto,theorganization. Furthermore,goodmanagersmusthaveendurancetotoleratechallengesandsetbackswhiletryingtoforgeahead. Tosuccessfullymanageanoperationalsorequiresfollowthroughandexecution. But,eachmanagementactionispredicateduponsomespecificdecision. Thus,gooddecisionmakingiscrucialtobeingasuccessfulmanager.
DECISIONMAKING:
Somemanagersseemtohaveanintuitivesenseofgooddecisionmaking. Therealityisthatgooddecisionmakingisrarelydonebyintuition. Consistentlygooddecisionscanonlyresultfromdiligentaccumulationandevaluationofinformation. Thisiswheremanagerialaccountingcomesin--providingtheinformationneededtofuelthedecision-makingprocess. Managerialdecisionscanbecategorizedaccordingtothreeinterrelatedbusinessprocesses:
planning,directing,andcontrolling. Correctexecutionofeachoftheseactivitiesculminatesinthecreationofbusinessvalue. Conversely,failuretoplan,direct,orcontrolisaroadmaptobusinessfailure.
Thecentralthemetofocusonisthis:
(1)businessvalueresultsfromgoodmanagementdecisions,
(2)decisionsmustoccuracrossaspectrumofactivities(planning,directing,andcontrolling),and(3)qualitydecisionmakingcanonlyconsistentlyoccurbyrelianceoninformation. Thus,Iimploreyoutoseetherelevanceofmanagerialaccountingtoyoursuccessasabusinessmanager. Let'snowtakeacloserlookatthecomponentsofplanning,directing,andcontrolling.
PLANNING:
Abusinessmustplanforsuccess. Whatdoesitmeantoplan?
Itisaboutthinkingahead--todecideonacourseofactiontoreachdesiredoutcomes. Planningmustoccuratalllevels. First,itoccursatthehighlevelofsettingstrategy. Itthenmovestobroad-basedthoughtabouthowtoestablishanoptimum"position"tomaximizethepotentialforrealizationofgoals. Finally,planningmustbeundertakenfromtheperspectiveofthoughtfulconsiderationoffinancialrealities/constraintsandanticipatedmonetaryoutcomes(budgets).
Youhaveperhapsundergonesimilarplanningendeavors. Forexample,youdecidedthatyoudesiredmoreknowledgeinbusinesstoimproveyourstakeinlife,youpositionedyourselfinaprogramofstudy,andyoudevelopedamodelofcosts(andfuturebenefits). So,youarequitefamiliarwiththenotionofplanning!
But,youareanindividual;youhaveeasilycapturedandcontainedyourplanallwithinyourownmind. Abusinessorganizationismadeupofmanyindividuals. And,theseindividualsmustbeorchestratedtoworktogetherinharmony. Theymustshareandunderstandtheorganizationalplans. Inshort,"everyoneneedstobeonthesamepage."
Strategy:
Abusinesstypicallyinvestsconsiderabletimeandmoneyindevelopingitsstrategy. Employees,harriedwithday-to-daytasks,sometimesfailtoseetheneedtotakeonstrategicplanning. Itisdifficulttoseethelinkagebetweenstrategicendeavorsandtheday-to-daycorporateactivitiesassociatedwithdeliveringgoodsandservicestocustomers. But,thisstrategicplanningultimatelydefinestheorganization. Specificstrategysettingcantakemanyforms,butgenerallyincludeselementspertainingtothedefinitionofcorevalues,mission,andobjectives.
CoreValues--Anentityshouldclearlyconsideranddefinetherulesbywhichitwillplay. Corevaluescancoverabroadspectruminvolvingconceptsoffairplay,humandignity,ethics,employment/promotion/compensation,quality,customerservice,environmentalawareness,andsoforth. Ifanorganizationdoesnotcauseitsmemberstounderstandandfocusontheseimportantelements,itwillsoonfindparticipantsbecomingsolely"profit-centric." Thisbehaviorinevitablyleadstoashort-termfocusandpotentiallyillegalpracticesthatprovidetheseedsofselfdestruction. Rememberthatmanagementistobuildbusinessvaluebymakingtherightdecisions;and,decisionsaboutcorevaluesareessential.
Earlier,referencewasmadetotheCMAandCFMdesignationsthatcanbeearnedfromtheInstituteofManagementAccountants(IMA). Youmightfinditinterestingtofollowthishyperlinkto IMA'sstandardsofethicalconduct foritsmembers.
Mission--Manycompaniesattempttoprepareapithystatementabouttheirmission. Forexample:
"AtIBM,westrivetoleadinthecreation,developmentandmanufactureoftheindustry’smostadvancedinformationtechnologies,includingcomputersystems,software,networkingsystems,storagedevicesandmicroelectronics.
Wetranslatetheseadvancedtechnologiesintovalueforourcustomersthroughourprofessionalsolutionsandservicesbusinessesworldwide."
Suchmissionstatementsprovideasnapshotoftheorganizationandprovideafocalpointagainstwhichtomatchideasandactions. Theyprovideanimportantplanningelementbecausetheydefinetheorganization'spurposeanddirection. Interestingly,someorganizationshaveavoided"missio
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