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Principles of Accounting, Volume 2: Managerial Accounting

Summary

Principles of Accounting, Volume 2: Managerial AccountingSummary

Summary

1.1 Define Managerial Accounting and Identify the Three Primary Responsibilities of Management

  • The purpose of managerial accounting is to supply financial and nonfinancial information to the organization’s management and other internal decision makers.
  • Most of the job responsibilities of a manager fit into one of three categories: planning, controlling, and evaluating.
  • Planning involves setting goals and forming the plans to achieve those goals.
  • Controlling involves the day-to-day activities. Its purpose is to help in planning functions and to facilitate coordination within the organization.
  • Evaluation determines whether plans are being followed and whether progress is being made as planned toward the fulfillment of organizational goals and objectives. It also involves taking corrective measures in case of deviations identified in the course of action.

1.2 Distinguish between Financial and Managerial Accounting

  • Managerial accounting provides information to managers and other users within the company. It has a specific focus, and the information is detailed and timely.
  • Financial accounting follows the guidelines of the GAAP, set in place by the FASB and, in many cases, by the SEC. Managerial accounting is much more flexible and does not have to follow specific rules or guidelines.
  • There are seven key differences between managerial accounting and financial accounting: users, types of reports produced, frequency of producing the reports, purpose of the information produced, focus of the reporting information, nature of the original information used to produce the reports, and verification of the data used to create the reports.

1.3 Explain the Primary Roles and Skills Required of Managerial Accountants

  • Essential skills for managerial accountants include commercial awareness, collaboration, effective communication skills, strong technology talents, extensive analytical abilities, and elevated ethical values.
  • Management accountants work with individuals at all levels of an organization from the CEO to the shop floor workers.
  • There are many different career paths management accountants can take to work in corporations, government entities, service firms, or nonprofit organizations.
  • There are numerous certifications that accountants can earn to improve their careers and set themselves apart from their peers.

1.4 Describe the Role of the Institute of Management Accountants and the Use of Ethical Standards

  • Many professional organizations share resources, such as education, research, and practice development, with their members. They also enforce a code of ethics for their members.
  • All employees within a company are expected to act ethically within their business actions. This can sometimes be difficult when the company almost promotes the idea of unethical actions.
  • In response to several corporate scandals, the United States Congress passed the Sarbanes-Oxley Act of 2002 (SOX).
  • Ethical codes can be helpful guidelines, but the rationale to act ethically must originate from within oneself, from personal morals and values. There are steps that provide an outline for examining ethical issues.
  • One of the issues with ethics is that what one person, community, or even country considers unethical or wrong, another person, community, or country may have no problem with and see it as just a way of doing business.
  • The Foreign Corrupt Practices Act of 1977 specifically prohibits payments to foreign government officials to aid in attaining or retaining business. This provision applies to all US persons and foreign firms acting within the United States.

1.5 Describe Trends in Today’s Business Environment and Analyze Their Impact on Accounting

  • Business regulations are always being altered, global competition continues to increase, and technology provides continual disruption. Management accounting must keep up with the changes in the business environment.
  • The fundamental difference between manufacturing organizations and service-based firms is whether the organizations produce a tangible product.
  • Business entities have been in the lead for using technology, but they must continue to adjust quickly with the ever-advancing business technology.
  • ERP systems help companies streamline their operations and help management respond quickly to change.
  • Lean manufacturing, which was started in Japan by automakers, is now a widely used practice that attempts to increase productivity and eliminate waste.
  • The philosophy of continuous improvement has led organizations to adopt practices such as TQM, JIT manufacturing, and LSS.
  • The balanced scorecard approach uses both financial and nonfinancial measures in evaluating all attributes of the organization’s procedures.
  • Globalization has expanded competitive borders, giving customers and companies more alternatives.
  • Many companies have started to assess their corporation not only on financial profits, but also on their corporate social responsibility.
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