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Chap 1 - Introduction To Management Accounting

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35 views9 pages

Chap 1 - Introduction To Management Accounting

Uploaded by

dehmkhonde12
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Part One:

Introduction to Management and


Cost Accounting

Chapter One:
Introduction to management accounting
Use with Management and Cost Accounting 10e
by Colin Drury ISBN 9781473748873
© 2018 Colin Drury
1.1a

Definition of accounting as formulated by the American


Accounting Association:

The process of identifying, measuring and communicating economic


information to permit informed judgements and decisions by users of
the information.

The Users of Accounting Information

The users of accounting information can be divided into two categories:

(i) internal users within the organization (management accounting)


(ii) external parties outside the organization (financial accounting).

Use with Management and Cost Accounting 10e


by Colin Drury ISBN 9781473748873
© 2018 Colin Drury
Some of the Users of Accounting Information

● Managers require information that will assist them in their decision-


making and control activities;
for example, information is needed on the estimated selling prices,
costs, demand, competitive position and profitability of various
products/services that are provided by the organization.
● Shareholders require information on the value of their investment
and the income that is derived from their shareholding.
● Employees require information on the ability of the firm to meet
wage demands and avoid redundancies.
● Creditors and the providers of loan capital require information on a
firm’s ability to meet its financial obligations.
● Government agencies such as the SARS require such information
as the details of dividends paid and the amount of profits that are
subject to taxation.

Use with Management and Cost Accounting 10e


by Colin Drury ISBN 9781473748873
© 2018 Colin Drury
1.1b

Differences Between Management Accounting and


Financial Accounting

• Statutory requirement for limited companies to produce annual


financial accounts, whereas there it is optional for management
accounting.
• Financial accounting reports describe the whole of the business,
whereas management accounting focuses on reporting information for
different parts or segments of the business.
• Financial accounting reports must be prepared in accordance with
generally accepted accounting principles (e.g. the International
Financial Reporting Standards Board).
• Financial accounting reports historical information, whereas
management accounting places greater emphasis on reporting
estimated future costs and revenues.
• Management accounting reports are produced at more frequent
intervals.

Use with Management and Cost Accounting 10e


by Colin Drury ISBN 9781473748873
© 2018 Colin Drury
1.2

Use with Management and Cost Accounting 10e


by Colin Drury ISBN 9781473748873
© 2018 Colin Drury
1.3

The impact of the changing business


environment on management accounting
• Emergence of global competition
• Changing product life cycles
• Advances in manufacturing technologies
• The impact of information technology
• Environmental and sustainability issues
• Pressures to adopt higher standards of ethical behaviour
• Deregulation and privatization
• Focus on value creation
• Customer orientation

Use with Management and Cost Accounting 10e


by Colin Drury ISBN 9781473748873
© 2018 Colin Drury
1.4

To compete successfully in today’s environment


companies should focus on providing customer
satisfaction by concentrating on:

• Cost efficiency (increased emphasis on accurate


product costs and cost management)
• Quality control (TQM, quality reporting)
• Time management (customer response time,
on-time delivery, eliminating non-value-added
activities)
• Innovation and continuous improvement

Use with Management and Cost Accounting 10e


by Colin Drury ISBN 9781473748873
© 2018 Colin Drury
1.5a

Functions of Management Accounting


1. Allocate costs between products sold, and fully and partly
completed products that are unsold.

2. Provide relevant information to help managers make better


decisions:

• profitability analysis
• product pricing
• make or buy (outsourcing)
• product mix and discontinuation.

Use with Management and Cost Accounting 10e


by Colin Drury ISBN 9781473748873
© 2018 Colin Drury
1.5b

3. Provide information for planning, control and performance


measurement and continuous improvement:

• long-term and short-term planning (budgeting)


• periodic performance reports for feedback control
• performance reports also widely used to evaluate
managerial performance
• note that costs should be assembled in different ways to
meet the above three requirements.

Use with Management and Cost Accounting 10e


by Colin Drury ISBN 9781473748873
© 2018 Colin Drury

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