Managerial Accounting

Accounting Recording Estimating Organizing Summarizing

|Financial and Operating Data|

Financial Accounting Reports to those outside the organization (Owners, Creditors, Tax Authorities, Regulators) Emphasizes financial consequences of past activities Emphasizes objectivity and verifiability Emphasizes Precision Emphasizes companywide reports Must follow GAAP/IFRS Mandatory for external reports

Managerial Accounting Reports to managers inside the organization for: planning, controlling, decision-making Emphasizes decisions affecting the future Emphasizes relevance Emphasizes timeliness Emphasizes segment reports Need not follow GAAP/IFRS Not mandatory

Comparison of Financial and Managerial Accounting

The fundamental difference between financial and managerial accounting is that financial accounting serves the needs of those outside the organization, whereas managerial accounting serves the needs of managers employed inside the organization

Planning Establish a goal Specify how to achieve this goal Create a budget

Controlling

Controlling Gathering, evaluating and responding to feedback to ensure results meet expectations Prepare performance reports

Decision MakingWhat should we be selling? What products and services should be the focus of our marketing effort? What new products and services should we offer? What prices should we charge for our products and services? What products and services should we discontinue?

Who should we be serving? Who should be the focus of our marketing efforts? Who should we start serving? Who should pay price premiums or receive price discounts? Who should we stop serving?

How should we execute? How should we supply our parts and services? How should we expand our capacity? How should we reduce our capacity? How should we improve our efficiency and effectiveness?

Customer Value Proposition Customer Intimacy Operational Excellence Product Leadership

Enterprise Risk Management is a process used by a company to identify risks and develop responses to them that enable the company to be reasonably assured of meeting its goalsReduce risks by implementing specific controls

Examples of Business Risk Intellectual assets being stolen from computer files Products harming customers Losing market share due to the unforeseen actions of competitors Poor weather conditions shutting down operations A website malfunctioning A supplier strike halting the flow of raw materials A poorly designed incentive compensation system causing employees to make bad decisions Financial statements inaccurately reporting the value of inventory An employee stealing assets An employee accessing unauthorized information Inaccurate budget estimates causing excessive or insufficient production Failing to comply with equal employment opportunity laws

Examples of Controls to Reduce Business Risks Set up firewalls Develop a formal and rigorous new product testing program Develop an approach for legally gathering information about competitor's plans and practices (or spy) Develop contingency plans Thoroughly test the website before going live Establish a relationship with multiple companies capable of providing raw materials Create a balanced set of performance measures that motivates the desired behavior Count the physical inventory on hand to reconcile with accounting records Segregate duties so the same employee does not have physical custody and the accounting responsibility of an asset Create password-protected barriers Implement a rigorous budget review process Create a report that tracks key metrics related to compliance with the laws

Research and Development  ||  Product Design  ||  Manufacturing  ||  Marketing  ||  Distribution  ||  Customer Service

Business Functions Making Up the Value Chain

Procedure to Fix Constraints  Identify the weakest link (the constraint) Do not place a greater strain on the system than the weakest link can handle - the chain will break Concentrate improvement efforts on strengthening the weakest link If the improvement efforts are successful, eventually the weakest link will improve to the point where it is no longer the weakest link Repeat process

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