management accounting overview1
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CA. K.N.Modi
MANAGEMENT ACCOUNTING
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Management AccountingInformation Systems
Inputs Processes Outputs
Users
Economic
Events
CollectingMeasuringStoring
AnalyzingReportingManaging
Special ReportsProduct Costs
Customer CostsPerformance ReportsPersonalCommunication
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The Management Process
The Management Process is defined by thefollowing activities:
Planning
Controlling
Decision making
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The Management Process(continued)
Planningrequires setting
objectives and identifyingmethods to achieve thoseobjectives.
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The Management Process(continued)
Controllingis the managerial activity of monitoring aplans implementation and taking corrective actionas needed.
Control is usually achieved with the use offeedback,which is information that can be used to evaluate orcorrect the steps being taken to implement a plan.
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The Management Process(continued)
Decision makingis the
process of choosing amongcompeting alternatives.
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Conceptual Framework ofManagement Accounting
q Cost Accounting Systems Know your costs
The how to of cost accumulation & allocation
q Managerial Decision Making
What difference will it make when a choice is to be made betweenalternative courses of action?
We assume economically-rational organizations and de-emphasize therole of individual decision-makers
q Planning & Control Systems Focus on how organizations run by delegation & accountability
Information asymmetry (subordinate knows what superior does notknow) results in problems of harmony of objectives. We assumeeconomically rational decision makers who have their own goalswithin the organization
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Management Accounting Financial Accounting
1. Internal focus
2. No mandatory rules
3. Financial and nonfinancialinformation; subjective
information possible
4. Emphasis on the future
5. Internal evaluation and
decisions based on detailed
information
6. Broad, multidisciplinary
1. External focus
2. Externally imposed rules
3. Objective financialinformation
4. Historical orientation
5. Information about the
firm as a whole
6. More self-contained
Comparison of Management andFinancial Accounting
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Historical Description ofManagement Accounting
1880 - 1925 Most of the product-costing and internalaccounting procedures used in thiscentury were developed
1925 Emphasis of inventory costing for externalreporting
1950s/60s Effort to improve the managerialusefulness of traditional cost systems
1980s/90s Significant efforts have been made toradically change the nature and practice ofmanagement accounting
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Emerging Themes ofManagement Accounting
q Activity-Based Management
q Customer Orientation
q Cross-Functional Perspectiveq Total Quality Management
q Time as a Competitive Element
q Efficiency
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Partial Organization Chart -Manufacturing Company
President
Production
Vice-presidentFinancial
Vice-president
Controller Treasurer Machining
SupervisorAssembly
Supervisor
Treasurer's
Functions
Controllers
Functions
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Role of Controller and
Treasurer
Controller Treasurer
1. Collection of cash
2. Monitoring of cash
payments
3. Monitors cash availability
4. Short-term investments5. Short and long-term
borrowing
6. Issuing of capital stock
1. Financial reports
2. Securities commission reporting
3. Tax planning and reporting
4. Performance reporting
5. Internal auditing
6. Budgeting
7. Accounting systems and
internal controls
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