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1-1 CHAPTER 1 THE ACCOUNTANT’S ROLE IN THE ORGANIZATION See the front matter of this Solutions Manual for suggestions regarding your choices of assignment material for each chapter. 1-1 Management accounting measures, analyzes and reports financial and nonfinancial information that helps managers make decisions to fulfill the goals of an organization. It focuses on internal reporting and is not restricted by generally accepted accounting principles (GAAP). Financial accounting focuses on reporting to external parties such as investors, government agencies, and banks. It measures and records business transactions and provides financial statements that are based on generally accepted accounting principles (GAAP). Other differences include (1) management accounting emphasizes the future (not the past), and (2) management accounting influences the behavior of managers and other employees (rather than primarily reporting economic events). 1-2 Financial accounting is constrained by generally accepted accounting principles. Management accounting is not restricted to these principles. The result is that management accounting allows managers to charge interest on owners’ capital to help judge a division’s performance, even though such a charge is not allowed under GAAP, management accounting can include assets or liabilities (such as “brand names” developed internally) not recognized under GAAP, and management accounting can use asset or liability measurement rules (such as present values or resale prices) not permitted under GAAP. 1-3 Strategic cost management describes cost management that specifically focuses on strategic issues. Management accountants help formulate strategy by helping managers answer questions such as: Who are our most important customers, and how do we deliver value to them? For example, after Amazon.com’s success in selling books online, Barnes and Noble developed the capabilities to sell online by building its information and technology infrastructure. What substitute products exist in the marketplace, and how do they differ from our product in terms of price and quality? For example, Hewlett-Packard designs new printers after comparing the quality, price, and functionality of its printers to other printers in the marketplace. What is our most critical capability? Is it technology, production, or marketing? How can we leverage it for new strategic initiatives? For example, Kellogg Company uses the reputation of its brand to introduce new cereals. Will adequate cash be available to fund the strategy, or will additional funds need to be raised? For example, Proctor & Gamble issued new debt and equity to fund its strategic acquisition of Gillette.
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1-2 1-4 The business functions in the value chain are Research and development —generating and experimenting with ideas related to new products, services, or processes.
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