Managerial Accounting

Managerial - Financial accounting deals with reporting information through financial statements that investors need to know in order to decide

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Financial accounting deals with reporting information through financial statements that investors need to know in order to decide whether to invest in a company. External use (financial accounting) and internal use (managerial accounting). The internal reporting function of an accounting system gives managers information needed for daily operations and also for long-range planning. Managerial accounting is an integral part of the management team that seeks to create value for the organization by managing resources, activities, and people to achieve the organization’s goals. Managerial accounting systems can be effective tools in providing information that is useful in decision-making at all levels in the organization Traditional management systems rely on financial measures that may reveal little about the progress in achieving long-term strategic objectives The fundamental management process is a key means of planning and developing strategies to help organizations attain their goals. Major Differences between Managerial Accounting and Financial Accounting Financial accounting prepare the fundamental financial documents (Balance Sheet, Income Statement, Statement of Cash Flows, Notes to Financial Statements) The most important similarity between managerial accounting and financial accounting is that both are used in decision-making The focus of managerial accounting is on the needs of managers within the organization, rather than interested parties outside the organization Financial accounting reports are aimed primarily at external users Managerial accounting reports are aimed primarily at internal users, managers also make significant use of financial accounting reports, and external users occasionally request financial information that is generally considered appropriate for internal users. Introduction to Cost Terms and Cost Concepts The very fundamental concept in managerial accounting is to understand costs and cost behavior The ability to predict how costs will respond to changes in activity is critical for decision-making, planning, and control o Examples of such activities include number of units produced, direct labor hours, and number of machine hours. Some costs change and others remain the same. This is called cost behavior Cost behavior is defined relative to some activity, such as the number of units produced, kilometres driven or meals served (also known as a cost “driver”). Cost behavior is defined as how cost will react or change as the level of business activity (or driver) changes. A key to understanding cost behavior is distinguishing between variable costs and fixed costs .
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Variable Costs Variable costs are items of cost that vary, in total, directly and proportionately with the level of activity (within the relevant range). A common example of a variable cost item is direct material cost.
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This note was uploaded on 03/21/2012 for the course ACCT 101 taught by Professor None during the Spring '12 term at CSU Northridge.

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Managerial - Financial accounting deals with reporting information through financial statements that investors need to know in order to decide

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