Management Accounting Ch1 TB Notes.docx - Chapter 1:...

Chapter 1: Managerial Accounting and the Business Environment
Learning objectives:
1. Describe the functions performed by managers.
2. Identify the major differences and similarities between financial and managerial accounting.
3. Explain the basic concept of enterprise risk management.
4. Explain the nature and importance of ethics for accountants.
5. Explain the elements of corporate social responsibility.
6. Explain how intrinsic motivation, extrinsic incentives, and cognitive biases affect employee
behaviour.
Managerial accounting primarily concerns providing information to people inside an organization who
direct and control its operations.
 Managerial accounting provides data that help organizations run more efficiently.
 Some reports managers may use:
o Reports that compare actual results to plans and to benchmarks focusing on how well
managers or business units have performed
o Reports may also provide timely updates on key non-financial and financial indicators,
such as orders received, customer acquisition costs, customer satisfaction, and sales.
o Reports may also be prepared as needed to help investigate specific problems, such as
decline in profitability.
Financial accounting primarily concerns providing information to shareholders, creditors, and others who
are outside an organization.
 Financial accounting provides the scorecard by which a company’s past performance is judged.
 Financial accounting focuses on limited set of specific quarterly and annual financial statements
prepared in accordance with GAAP and government regulations.
Functions of managers:
1. Planning involves establishing goals and specifying how to achieve them
a. Plans are accompanied by a budget-detailed plan for the future that is usually expressed
in formal quantitative terms.
2. Directing and motivating involve mobilizing people to carry out plans and run routine
operations
a. Managers assign tasks to employees, arbitrates disputes, answer questions, solve on-the-
spot problems, and make many small decisions that affect customers and employees.
b. Managers also establish procedures for resolving differences in opinion that inevitably
arise when achieving goals established in the planning stage.
3. Controlling involves gathering feedback to ensure that the plan is being properly executed or
modified as circumstances change
a. Gathering, evaluating, and responding to feedback to ensure that this year’s goals meet
expectations. Have to understand why or why not goals were met.
b. Part of the control process includes preparing performance reports that compare budgeted
data to actual data on a periodic basis, usually monthly, to identify and learned from
excellent performance and to identify and eliminate sources of unsatisfactory
performance.