6-Financial%20%26%20Management%20Accounting - Engineering...

Engineering Economics
ECO 1192
Lecture 6: Financial & Management Accounting
Claude Théoret
University of Ottawa

Fall 2009 Lecture 6: Financial And Management Accounting 2
Recommended Reading2
•
Fraser et al.* chapter 6
• Newnan et al. chapter 18
• Park chapter 13

Fall 2009 Lecture 6: Financial And Management Accounting 3
Lecture Focus
Accounting
•
financial
• management
Performance Measurement
• the balance sheet
• the income statement
• the statement of changes in financial position
Analysis of financial statements
•
financial ratios

Fall 2009 Lecture 6: Financial And Management Accounting 4
Financial Accounting
•
Recording and organizing business financial data
• revenues and expenses and
• levels (resources and claims on resources at a given
time)
•
Used for budgeting, cash management, and
management of long-term debt
• By external users (investors, creditors) to make
rational choices about a business
•
Includes the preparation of:
1.
Balance sheets
2.
Income statements
3.
Changes in financial position

Fall 2009 Lecture 6: Financial And Management Accounting 5
Management Accounting
•
Analysis of the costs and benefits of business
activities
• provides managers with information for
decision-making
•
Engineers are increasingly involved in
business decision-making
•
need both financial and management
accounting

Fall 2009 Lecture 6: Financial And Management Accounting 6
Performance Measurement
•
Flow of money in a firm is like the flow of water in a
pipe or electricity in a wire
• water pressure and voltage are “ across variables ”
measured at a point in time (a snapshot)
• water and electrical flow are measured as “ through
variables ” over time (a second; week; etc)
•
Income statement
• a “through variable”
• measures the flow of income and expenses during a
specific period of time
•
Balance sheet
•
an “across variable” or stock variable
•
Measures assets, liabilities and net worth at a point in
time (i.e., a snapshot)

Integrated Measurement Environment
Results/
Outcomes
Stakeholder
Needs
Implementation
Actions
Business
Planning
Accountability
Results
Expectation
Strategic
Planning
Strategy
Program Priorities
& Resource
Allocation
Decision
Support
Change
Plan
Re-engineer
Process
Review
Strategies
Reports to
Stakeholders
Performance
Measurement

Results Chain
Results Chain
–
–
Logic Model
Logic Model
Area of Control
Internal to the organization
Activities
Inputs
(Resources)
Outputs
Area of Influence
External to the organization
Immediate
Outcomes
(Direct)
Intermediate
Outcomes
(Indirect)
Final
Outcome
Efficiency
Effectiveness
External Factors
Control and
Influence

Fall 2009 Lecture 6: Financial And Management Accounting 9
Financial Accounting Statement:
Balance Sheet
1. Assets (business resources)
•
Current
•
Long term
2. Liabilities (business debt)
•
Current
•
Long term
3. Equity (ownership)

Fall 2009 Lecture 6: Financial And Management Accounting 10
Table 6.2 Balance Sheet for the
Major Electric Company

Fall 2009