Chapter 1 Managerial Accounting Essay examples

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What Is Managerial Accounting?
Financial accounting: is concerned with reporting financial information to external parties, such as stockholders, creditors, and regulators
Managerial accounting: is concerned with providing information to managers for use within the organization

EXHIBIT 1-1 COMPARISON OF FINANCIAL AND MANAGERIAL ACCOUNTING
Recognizes the fundamental difference  financial accounting serves the needs of those outside the organization, managerial accounting serves the needs of managers employed inside the organization
Financial accounting emphasizes the financial consequences of: past activities, objectivity & verifiability, precision, and companywide performance
Managerial accounting emphasizes decisions affecting: the future, relevance, timeliness, and segment performance.
Segment: a part or activity of an organization about which managers would like cost, revenue, or profit data (examples: product lines, customer groups (age, ethnicity, gender, volume of purchases, etc.), geographic territories, divisions, plants, and departments
Financial accounting  mandatory for external reports & it needs to comply w/rules (GAAP) & (IFRS)
Managerial accounting  not mandatory & no need to comply w/externally imposed rules

Managerial accounting performs three vital activities:
1. Planning
2. Controlling
3. Decision making
Planning: involves establishing goals and specifying how to achieve them
Controlling: involves gathering feedback to ensure that the plan is being properly executed or modified as circumstances change
Decision making: involves selecting a course of action from competing alternatives
Planning
You work for Procter & Gamble (P&G), & you are in charge of company's campus recruiting Example:
Planning process begins by establishing a goal:
1. To recruit the “best and brightest” college graduates
2. Req’s specifying how to achieve this goal by answering numerous questions (examples):
• How many students do we need to hire in total and from each major?
• What schools do we plan to include in our recruiting efforts?
• Which of our employees will be involved in each school's recruiting activities?

Plans are often accompanied by a budget
Budget: A detailed plan for the future that is usually expressed in formal quantitative terms

Example:
As head of recruiting at P&G, budget includes 2 key components:
1. Have to work w/senior managers inside company & establish budget amount of total salaries to be offered to all new hires
2. Create a budget that quantifies how much intending to spend on campus recruiting activities
Controlling
Once recruiting plan established, need to transition to control process
Process involves  gathering, evaluating & responding to feedback to ensure recruiting process meets expectations, evaluating feedback for effectiveness and efficiency, and questions:
• Did we succeed in hiring the planned number of students within each major and at each school?
• Did we lose too many exceptional candidates to competitors?
• Did each of our employees involved in the recruiting process perform satisfactorily?
• Is our method of comparing students to one another working?
When answering goal = search underlying reasons why performance exceeded or failed to meet expectations

Control process includes: preparing performance reports
Performance report: compares budgeted data to actual data in an effort to identify and learn from excellent performance and to identify and eliminate sources of unsatisfactory performance.
Uses: one of many inputs to help evaluate & reward employees

Decision Making
Basic managerial skill = ability to make intelligent, data-driven decisions
Decisions revolves around 3questions: What should we be selling? Who should we be serving? How should we execute?

EXHIBIT 1-2 Examples of decisions

(Left hand) suggests every company must make decisions related to products & services it sells
(Middle) indicates all companies must make decisions related to customers they serve
(Right…