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:
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
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
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
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
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