Chapter 1 notes

Chapter 1 notes - ManagerialAccounting

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Managerial Accounting  The goal of managerial accounting is to provide the information they need for  planning, control,  and  decision making . The financial plans prepared by managerial accountants are referred to as  budgets . A wide  variety of budgets may be prepared. For example, a  profit budget  indicates planned income, a  cash-flow budget  indicates planned cash inflows and outflows, and a  production budget  indicates the planned quantity of production and the expected costs. Control  of organizations is achieved by evaluating the performance of  managers  and the  operations  for which they are responsible. Managers  are evaluated to determine how their performance should be rewarded or punished,  which in turn motivates them to perform at a high level. Operations  are evaluated to provide information as to whether they should be changed or not  (i.e., expanded, contracted, or modified in some way). Performance reports  : The reports used to evaluate the performance of managers and the  operations they control.  Although there is no generally accepted method of preparing a  performance report, such reports frequently involve a comparison of current-period performance  with performance in a prior period or with planned (budgeted) performance. Typically, managers follow the principle of  management by exception  when using performance  reports. This means that managers investigate departures from the plan that appear to be  exceptional; they do not investigate minor departures from the plan. There are important differences between managerial and financial accounting: 
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1.   Managerial accounting is directed at internal rather than external users of accounting  information.(needed for planning, control, and decision making) 2.   Managerial accounting may deviate from generally accepted accounting principles (GAAP). 3.   Managerial accounting may present more detailed information. 4.   Managerial accounting may present more nonmonetary information. 5.   Managerial accounting places more emphasis on the future. SECTION 1.2 Variable costs  : costs that increase or decrease in proportion to increases or decreases in the  level of business activity. Material and direct labor are generally considered to be variable costs  because in many situations, they fluctuate in proportion to changes in production. Although total variable cost changes with production, 
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This note was uploaded on 02/04/2011 for the course ACG 2071 taught by Professor Lopez during the Summer '08 term at Valencia.

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Chapter 1 notes - ManagerialAccounting

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