Chapter 1
Introduction to Management Accounting
What is Managerial Accounting?
-managerial accounting is providing information for a company’s internal users
-it is the firm’s internal accounting system
-it is designed to support the information that managers need
-it is not bound by any formal criteria such as GAAP or IFRS (International Financial Reporting Standards)
-managerial accounting has 3 basic objectives:
1. Provide information for planning the organizations actions
2. Provide information for controlling the organizations actions
3. Provide information for making effective decisions
Information Needs for Planning, Control, and Decision Making:
-managerial accounting information is needed by a number of individuals, in particular managers and empowered workers need comprehensive, up to date information for the following activities:
Planning: requires setting objectives and identifying methods to achieve those objectives
EX: a firm may set the objectives of increasing its short term and long term profitability by improving the overall quality of its products
Controlling: monitoring a plans implementation and taking corrective actions, usually achieved by comparing actual performance with expected performance
EX: managers may decide to let the plan continue as is, take corrective action of some type to put the action back with the original plan
Decision Making: process of choosing alternatives
Managers cannot successfully plan or control the organization actions without making decisions regarding competing alternatives
Comparison of Managerial and Financial Accounting
-there are two kinds of accounting information systems:
Financial Accounting
Managerial Accounting
Managerial Accounting:
-internal focus such as managers, executives and workers
-there are no rules
-financial and non financial information
-deals with future; strongly emphasizes information about future events
-it is