Chapter_01 - Chapter 1 Lecture Notes 1 I Chapter theme This chapter serves three main purposes First it describes the work of management and the

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43 Chapter 1 Lecture Notes Chapter theme: This chapter serves three main purposes . First, it describes the work of management and the need for managerial accounting information. Second, it compares financial accounting and managerial accounting. Third, it discusses the four main uses of cost information—to prepare external financial reports, to predict cost behavior, to assign costs to cost objects, and to make business decisions. I. The work of management and the need for managerial accounting information A. Managers carry out three main activities – planning , directing and motivating , and controlling . i. Planning 1. An important part of planning is to identify alternatives and then to select from among the alternatives the one that does the best job of furthering the organization’s objectives. 2. Once alternatives have been identified, the plans of management are often expressed formally in budgets . a. Budgets are usually prepared under the direction of the controller , who is the manager in charge of the accounting department. b. Typically, budgets are prepared annually . ii. Directing and motivating 1 2 3
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44 1. In addition to planning for the future, managers must oversee day-to-day activities to keep the organization functioning smoothly. 2. Managerial accounting data, such as daily sales reports , are often used in this type of day-to-day decision making. iii. Controlling 1. In carrying out the control function, managers seek to ensure that the plan is being followed. Feedback , which signals whether operations are on track, is the key to effective control. a. A performance report compares budgeted to actual results. It suggests where operations are not proceeding as planned and where some parts of the organization may require additional attention. iv. The planning and control cycle 1. The work of management, which is known as the planning and control cycle, can be depicted as shown. Learning Objective 1: Identify the major differences and similarities between financial and managerial accounting. 4 5 6 7
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II. Comparison of financial and managerial accounting A. Seven key differences i. Users 1. Financial accounting reports are prepared for external parties , whereas managerial accounting reports are prepared for internal users . ii. Emphasis on the future 1. Financial accounting summarizes past transactions . Managerial accounting has a strong future orientation . iii. Relevance of data 1. Financial accounting data are expected to be objective and verifiable . Managerial accountants focus on providing relevant data even if the data are not completely objective or verifiable. iv. Less emphasis on precision 1. Financial accounting focuses on precision when reporting to external parties. Managerial accounting aids decision makers by providing good estimates as soon as possible rather than waiting for precise data later. 8
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This note was uploaded on 08/09/2011 for the course ACCOUNTING --- taught by Professor --- during the Spring '11 term at Universidad Iberoamericana.

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Chapter_01 - Chapter 1 Lecture Notes 1 I Chapter theme This chapter serves three main purposes First it describes the work of management and the

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