| A | B |
|---|
| Accounting can be broken down into two types | Financial accounting & Management accounting |
| Financial accounting | reporting to outsiders (creditors, stockholders, banks, the gov't.) |
| Management accounting | Reporting to people inside the company, to help them manage the company. |
| Organizations can be classified as | for profit & non-profit. |
| For profit organization | Primary goal is to earn a profit |
| Non-for profit organization | Primary goal is not to earn a profit, provide relief/service |
| Both type of organizations have to carefully | manage their resources in order to be in a position to achieve their respective goals. |
| Three functions of management | 1) Planning 2) Organizing 3) Control |
| Planning (Long & short range) | Involves setting goals, selecting ways to accomplish these goals |
| Longe range goals | Comes first, usually takes several years to realize |
| Short range goals | are made in accordance with the company's longe range plans, thend to be more specific than long range plans. |
| Organizing | 1) structuring the company into a well ordered whole, 2) assigning specific tasks to specific people, holding them accontable for accomplishing their tasks 3) establishing relationships between people (subordinate relationships) |
| Organization charts | Reflect formal relationships, informal relationships can be very powerful & shouldn't be ignored |
| Controlling | comparing the plan to actual results, new action is taken or plans are revised. Therefore, POC is a continuous cycle |
| Controlling | Controlling is not making sure you accomplish your plan or your goal. |
| Accounting as a management tool | Managers rely on accounting information |
| A budget | is a formal quantification of managements plans, accounting is used to prepare budgets, help managers plan |
| A budget | alternative courses of action can also be expressed in budgets helping managers plan alternative courses of action can also be expressed in budgets also helping managers plan |
| A budget | Shows how different departments are interrelating |
| A budget | Management use the budget to help them organize their company appropriately |
| Performance reports | Reflect actual operating results can be used to compare budgeted (planned) operations to actual operations, thereby determining variances |
| Variance | Difference between budget & activity, variances are either favorable or unfavorable. Managers can spot problem areas this way |
| Mgmt. by exception | when managers concentrate on problem areas, leave well enough alone |
| Budgets & performance reports | reflect qty of materials, labor hours, units of production, etc, not just t$$ |
| Mgmt. by objectives | set of short term, non monetary goals (fire dept strives to reduce response time to a fire alarm) |
| Mgmt. by objectives | Accounting info. assists in problem solving-accounting can be used to compare alternatives so that the best alternative cna be identified (to buy or lease an asset) |
| Mgmt. by objectives- External forces increase the importance of accounting | proper accounting for costs can make the difference between winning or losing, a lawsuit, getting a contract, etc. |
| A budget | Used in the planning phase of mgmt |
| Planning | Setting goals, selecting ways to reach these goals |
| Planning involves | short range & longe range goals |
| Mgmt. accounting | Internally focused |
| Mgmt. accounting | No mandatory rules |
| Mgmt. accounting | emphasis on the future (reports on the past of future) |
| Mgmt. accounting | Internal evaluation of segments carrying strong behaviorial ramifications |
| Mgmt. accounting | Detailed information, more frequent, & shorter time periods, 365x annually, 1 day reports |
| Mgmt. accounting | Sprcial purpose financial statements (reports that fit the manager) |
| Mgmt. accounting | not required by law |
| Mgmt. accounting | allows for subjective, what they think, feel |
| Mgmt. accounting | Cost benefit approach applies heavily |
| Cost benefit approach | a reasonable relationship between two things, how much does it cost and what's the benefit |
| Financial accounting | externally focused |
| Financial accounting | must follow externally imposed rules |
| Financial accounting | historical orientation (reports on past) |
| Financial accounting | external evaluation of the firm as a whole-reports for the whole company |
| Financial accounting | Information about the firm as a whole, less frequent, less detailed, longer time periods (1 year) |
| Financial accounting | general purpose FS, reflects entire company |
| Financial accounting | required by law (sometimes) |
| Financial accounting | emphasis objective data (real time, fact, must follow rules. |
| Budget | Formal quantification of managements goals. Your forecast what will take place in the future. to do this, youneed to estimate & predict future needs & events, difficult to do. |
| Performance reports | reflect budgeted vs. actual data |
| Variance | the diference between budget & actual, are determined & analyzed, problems are investigated & corrected, plans are revised. |
