 Need not follow GAAP/ASPE/

IFRS.
Managerial Accounting
 Not mandatory
1. What are the major differences
between financial and managerial  Financial accounting involves
accounting? recording, summarizing, and
 Managerial accounting is the reporting the stream of transactions
and economic activity resulting from
practice of identifying, measuring,
business operations over a period of
analyzing, interpreting, and time to the public or regulators.
communicating financial information
to managers for the pursuit of an    financial accounting holds the
organization's goals. information to parties outside the
 Managerial accounting reports organization. 
are aimed at helping within the  shapes the entire business
 financial accounting focuses on a
organization and prepared for
business’s efficiency and
internal activities profitability.
  focuses on a more detailed level.  financial data reporting is always
 Management accounting takes accurate
care of profits, product line,  financial accounting focuses on
customer, and geographic region long-term financial strategies
in a more detailed way. relating to organizational growth.
 Reports to those outside the
 managerial reporting depends on
organization: Owners Creditors
estimates with proven facts.  Tax authorities Regulators
 managerial accounting focuses on  Emphasizes financial
making well-informed decisions consequences of past activities.
that will help to grow the  Emphasizes objectivity and
business.  verifiability.
 Emphasizes precision.
 Reports to those inside the
 Emphasizes summary data
organization for Planning
concerning the entire
Directing and motivating organization.
Controlling Decision making  Must follow GAAP/ASPE/IFRS.
 Emphasizes decisions affecting  Mandatory for external reports
the future.
 Emphasizes relevance.
 Emphasizes timeliness.
 Emphasizes detailed segment
reports about departments,
products, and customers.
2. Describe the four major activities of a requirements as much as
manager. possible. Companies try to
 Planning - Developing goals and understand the individual
specifying how to achieve them. customer closely and focus upon
 Directing and motivating - Mobilizing the specific needs of the
customer.
people to carry out plans and run
routine operations. Companies that adopt a customer intimacy
 Controlling - Gathering feedback to strategy are in essence saying to their
ensure that the plan is being properly target customers, “You should choose us
executed or modified as necessary. because we understand and respond to
 Decision making - Selecting a course your individual needs better than our
of action from among alternatives. competitors do.”

3. What is a budget?
 It is used to forecast the financial 2.  Operational Excellence:
results and financial position of an Operational excellence is the type
entity for a future period. of strategy in which the company
 It is used for planning and offers the product to the
performance measurement customer at low competitive
purposes, which can involve spending prices. In this company focus on
for fixed assets, rolling out new the increase in volume and
products, training employees, setting reduction of the product cost.
up bonus plans, controlling
operations, and so forth. operational excellence, are saying to their
 A budget is a detailed plan for the target customers, “You should choose us
future that is usually expressed in because we can deliver products and
formal quantitative terms services faster, more conveniently, and at a
4. Describe the three broad categories of lower price than our competitors.”
customer value propositions.
 Customer Value Proposition - The
customer value proposition 3.  Product Leadership: Product
generates value in the product or leadership is the strategy of
services offered to the end customers offering a quality product at a
by the company. It is the sum of the premium price. The company
benefit added to the product produces the product with
provided to the customer against the distinct features and functions
payment by the customer. and offers the product to
customers at a higher price.
1. Customer Intimacy: Customer
intimacy is the type of business
strategy in which the company
learns and studies customers'
product leadership, are saying to their organization. A person in a staff
target customers, “You should choose us position, by contrast, is only
because we offer higher quality products indirectly involved in achieving those
than our competitors.” basic objectives. Staff positions
support or provide assistance to line
5. What are the four steps in the planning positions or other parts of the
and control cycle? organization, but they do not have
direct authority over line positions.
 Formulating long and short-term
plans (Planning)
8. What is decentralization?
 Implementing plans (Directing and
Motivating)
 It is the delegation of decision making
 Measuring Performance
throughout an organization by
(Controlling)
providing managers at various
 Comparing Actual to planned
operating levels with the authority to
performance (Controlling)
make key decisions relating to their
6. Describe the responsibilities of the areas of responsibility. Some
controller. organizations are more decentralized
than others.
 The controller reports to the chief
financial officer (CFO). Both the 9. What are the six business functions that
controller and the CFO are staff make up the value chain?
positions. The CFO is the member of
the top management team who is  Research and Development
responsible for providing relevant
and timely data to support planning  Product Design
and control activities and for
preparing financial statements for  Manufacturing
external users. The controller is
responsible for the more technical  Marketing
details of accounting and finance,
provides leadership to other  Distribution
professionals in her or his
department, and analyzes new and  Customer Service
evolving situations.

7. Distinguish between line and staff

positions in an organization.

 An organization chart also depicts

line and staff positions in an
organization. A person in a line
position is directly involved in
achieving the basic objectives of the
 contain guidance on what
employees should do upon
10. What are some examples of things observing a violation of one or more
socially responsible organizations should
standards by a co-worker or
provide for their employees?
superior.
 An enterprise system is designed to
overcome these problems by 14. What are the four key aspects of the
integrating data across an Sarbanes-Oxley Act of 2002 ?
organization into a single software
system that enables all employees  The Sarbanes-Oxley Act of 2002. The
to have simultaneous access to a Act applies to all publicly traded
common set of data. companies in the United States,
including Canadian companies such
11. What is an enterprise system supposed as Barrick Gold, whose shares trade
to accomplish? on a U.S. stock exchange. Some of
the key aspects of the legislation are
 An enterprise system is designed to as follows:
overcome these problems by
integrating data across an a. Requires the CEO and CFO to
organization into a single software certify in writing that the
system that enables all employees financial statements fairly
to have simultaneous access to a represent the results of
common set of data. operations. Certifying financial
statements known to contain
12. Why should companies be careful to misrepresentations can lead to
maintain a good ethical reputation? jail time for the CEO or CFO.

b. Places the power to hire,

compensate, and terminate the
13. Why do companies prepare a code of public accounting firm that
conduct? audits a company’s financial
reports in the hands of the audit
 Companies prepare a code of committee of the board of
conduct to reflect the values and directors.
the moral system. It also specifies
c. Restricts the nature and extent
what is expected of permanent and
of non-auditing services that
temporary employees in their can be provided by public
dealings with the various accounting firms to companies
stakeholders. Thus, the code reflects that are their audit clients.
what the company stands for when Provision of non-audit services
it interacts through its employees such as consulting can impair a
public accounting firm’s ability to
with other stakeholders. It often
 act objectively when auditing the  A website malfunctioning
financial statements.
 A supplier strike halting the flow of
d. Requires a company’s annual raw materials
report to contain an internal
control report. Internal controls  A poorly designed incentive scheme
are established by management causing employees to make bad or
to assure shareholders and high-risk decisions •
prospective investors that the
financial statements are  Financial statements inaccurately
reliable. The report must contain reporting the value of inventory
a statement by management
about the effectiveness of the  An employee stealing assets
internal controls.
 An employee accessing
15. Briefly describe what is meant by unauthorized information
enterprise risk management .
 Inaccurate budget estimates causing
 Every business strategy or decision excessive or insufficient production
involves risks. Enterprise risk
management is a process used by a
company to proactively identify and
manage those risks.

16. What are some examples of common

business risks faced by companies? Failing to comply with equal
 Intellectual assets being stolen from
employment opportunity laws
computer files

 Products harming customers

 Losing market share due to the

unforeseen actions of competitors

 Poor weather conditions shutting

down operations
1–1 What are the major differences between financial and managerial accounting?

Financial Managerial
Accounting Accounting
• Reports to those outside • Reports to those inside
the organization: the organization for
Owners Planning
Creditors Directing and motivating
Tax authorities Controlling
Regulators Decision making
• Emphasizes financial • Emphasizes decisions
consequences of past affecting the future.
activities. • Emphasizes relevance.
• Emphasizes objectivity and • Emphasizes timeliness.
verifiability. • Emphasizes detailed segment
• Emphasizes precision. reports about departments,
• Emphasizes summary data products, and customers.
concerning the entire • Need not follow GAAP/ASPE/
organization. IFRS.
• Must follow GAAP/ASPE/IFRS. • Not mandatory.
• Mandatory for external reports.

1–2 Describe the four major activities of a manager.

Planning - Developing goals and specifying how to achieve them.

Directing and motivating - Mobilizing people to carry out plans and run routine operations.

Controlling - Gathering feedback to ensure that the plan is being properly executed or modified as
necessary.

Decision making - Selecting a course of action from among alternatives.

1–3 What is a budget?

Budget - A quantitative plan for acquiring and using financial and other resources over a specified future
time period.

1–4 Describe the three broad categories of customer value propositions.

Companies that adopt a customer intimacy strategy are in essence saying to their target customers,
“You should choose us because we understand and respond to your individual needs better than our
competitors do.”

operational excellence, are saying to their target customers, “You should choose us because we can
deliver products and services faster, more conveniently, and at a lower price than our competitors.”

product leadership, are saying to their target customers, “You should choose us because we offer higher
quality products than our competitors.”
1–5 What are the four steps in the planning and control cycle?

1–6 Describe the responsibilities of the controller.

The controller reports to the chief financial officer (CFO). Both the controller and the CFO are staff
positions. The CFO is the member of the top management team who is responsible for providing
relevant and timely data to support planning and control activities and for preparing financial
statements for external users. The controller is responsible for the more technical details of accounting
and finance, provides leadership to other professionals in her or his department, and analyzes new and
evolving situations.

1–7 Distinguish between line and staff positions in an organization.

Line position is directly involved in achieving the basic objectives of the organization.

A person in a staff position, by contrast, is only indirectly involved in achieving those basic objectives.
Staff positions support or provide assistance to line positions or other parts of the organization, but they
do not have direct authority over line positions.

1–8 What is decentralization?

Decentralization is the delegation of decision making throughout an organization by providing managers

at various operating levels with the authority to make key decisions relating to their areas of
responsibility.
1–9 What are the six business functions that make up the value chain?

1–10 What are some examples of things socially responsible organizations should provide for their
employees?

1–11 What is an enterprise system supposed to accomplish?

An enterprise system is designed to overcome these problems by integrating data across an

organization into a single software system that enables all employees to have simultaneous access to a
common set of data.

Cost
- monetary value that a company has spent in order to produce something
- Amount of money that a company spends on the creation or production of goods
or services. It does not mark up for profit
Manufacturing costs
- direct materials – integral part of finished product (leather etc.)
- indirect material –small items of a material that may become an integral part of
the finished product (glue etc.)
- direct labour – the factory labour cost (factory worker etc.)
- indirect labour- factory workers that cannot be traced directly to a particular
product (janitors, supervisors etc.)
- manufacturing overhead – all costs associated with manufacturing except direct
materials and labour
- conversion cost – direct labour cost plus manufactured overhead cost
- prime cost - direct materials cost plus direct labour cost
Classification of manufacturing cost
- overtime premiums – extra hourly wage rate paid to workers who must work
more that their normal time requirement.

Product costs - all costs involved in the purchase or manufacture of goods.

Period cost – all costs that are expensed on the income statement in the period in which
they are incurred or accrued. Selling/marketing and administrative expenses are period
costs
Marketing or selling cost- all cost necessary to secure customer orders and get the
finished product or service to the customer
Administrative costs- all executive, organizational, and clerical costs associated with the
general management of an organization rather than with manufacturing, marketing, or
selling

Raw direct materials inventory- materials used to make a product that have not yet been
placed into production
Word in process inventory – inventory consisting of units of product that are only
partially complete and will require further work before they are ready for sale to a
customer
Finished goods inventory – inventory consisting of units of product that have been
completed but have not yet been sold to customers
Revenue – the amount of money that came in during the period of time in question
Cost of goods sold – it is either the cost of purchasing the goods or the cost of
manufacturing those goods
Cost of foods manufactured – costs that include the direct material, direct labour, and
manufacturing overhead used for the products finished during the period
Gross profit – revenue COGS
Schedule of goods
Cost object – anything for which cost data are desired
Direct cost – a cost that can be easily and conveniently traced to the particular object
under consideration
Indirect cost –a cost that cannot be easily and conveniently traced to the particular cost
under consideration
Common cost – a cost that is incurred to support a number of cost objects but cannot
be traced to any of them individually
Differential cost – a difference in cost between any two alternatives
Differential revenue –a difference in revenue between any two alternatives
Incremental cost - an increase in cost between two alternatives
Opportunity cost – the potential benefit that is given up when one alternative is selected
over the other
Sunk cost – any cost that has already been incurred and that cannot be changed by any
decision made now or in the future