BUSS1030 Chapter Notes - Chapter 10: Financial Accounting, Management Accounting, Financial Ratio
28 May 2018
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Department
Course
Professor
CHAPTER 10: INTRODUCTION TO MANAGERIAL ACCOUNTING
• Financial accounting: provides financial statements that report results of operations, financial position and cash
flows both to managers and external stakeholders
• Management accounting: concerned with providing managers with information required for day-to-day running of
the business
o Can include managing the company’s plant, equipment and human resources
o Often requires forward looking
MANAGEMENT ACCOUNTABILITY
FINANCIAL ACCOUNTING
MANGAMENT ACCONTING
Focus
Mainly external
Internal only
Nature of Reports
General purpose
Specific purpose
Level of Detail
Broad overview
Quite detailed
Restrictions
Accounting standards and other
regulations
No restrictions
Reporting Interval
Mainly semi-annual or annual
Whenever required
Time Horizon
Mainly historical
Both past and future
Range of Information
Quantifiable in money terms, focus
on objective and verifiable data
Can contain non-financial info, less
focus on objectivity and verifiability
• Management accountability: managers have responsibility to various stakeholders within a business
• Managers must plan and control operations carefully
o Planning: choose goals and decide how to achieve them
o Controlling: implement plans and evaluate operations by comparing actual results to the budget
STAKEHOLDERS
PROVIDE
MANAGEMENT IS ACCOUNTABLE FOR
Operating Activities
Suppliers
Employees
Customers
Products and services
Time and expertise
Cash
Making timely payments to suppliers
Providing a safe and productive work environment
Providing products and services that are safe and defect free,
backing up the G+S they provide
Investing Activities
Asset Vendors
Long term assets
Making timely payments to asset vendors
Financing Activities
Owners
Creditors
Cash or other assets
Cash
Providing returns on the owner’s investment
Repaying principal and interest
Actions that Affect Society
Governments
Communities
Permission to operate
Human and physical
resources
Obeying laws and paying taxes
Operating in an ethical manager to support the community, ensuring
the company’s environmental impact does not harm the community
CHAPTER 11: COST-VOLUME-PROFIT ANALYSIS AND MARGINAL ANALYSIS
THE BEHAVIOUR OF COSTS
• Costs can be broadly classified as:
o Fixed: those that stay the same when the volume of activity changes
o Variable: those that vary in accordance with the volume of activity
• Both are often associated with an activity, hence the importance to the decision-making process of understanding
the quantity and impact of both
FIXED COSTS
• Likely to change b/c inflation or general price increases à but NOT as a result of change in volume of activity
• Are almost always time based à i.e. vary with the length of time concerned
• Do not stay unchanged irrespective of level of output à often must increase to allow higher output levels
Document Summary
Quantifiable in money terms, focus on objective and verifiable data. Providing products and services that are safe and defect free, backing up the g+s they provide. Operating in an ethical manager to support the community, ensuring the company"s environmental impact does not harm the community. Variable costs: costs vary with the level of activity, graph suggests variable costs are linear i. e. normally the same per variable cost unit of production irrespective of the number of units produced. In some cases, the line is not straight as higher volumes of activity may introduce. Eos, thus changing the variable costs lines as production increases. Exhibit aspects of both fixed and variable costs. Part are fixed and won"t change w/ level of activity, while some are variable and will vary with changes activity: e. g. mobile phone costs fixed monthly charge + variable costs.
