AFM 102 Textbook Notes Chapters 1-8

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Accounting & Financial Management
AFM 102
Khim Kelly

Chapter 1: Managerial Accounting and the Business Environment January-07-13 10:30 AM The Role of the Management Accountant in Value Creation - Managerialaccounting: form of accounting concerned with providing informationto managers for use in planning & controlling operations, & for decision making - Financialaccounting: form of accounting concerned with providing information to external users The Work of Managers and their Need for Managerial AccountingInformation - Planning:developing objectives& preparing budgets to achieve these objectives • Budget:quantitative plan for the acquisition & use of financial & other resources over a specified future time period ○ Prepared under direction of controller(manager in charge of acct dept in an organization) ○ Represent management's plans in specific, quantitative terms - Directing & motivating: mobilizing people to carry out plans & run routine operations - Controlling: ensuring that the plan is actually carried out & is appropriately modified as circumstanceschange ○ Feedback: accounting & other reports that help managers monitor performance& focus on problems and/or opportunities that might otherwisego unnoticed ○ Performance report: detailed report comparing budgeted data to actual data - Strategy: game plan that enables a company to attract & retain customersby distinguishing itself from competitors - Reason for customers to choose co. over competitor -> customer value propositions • 3 broad categories: ○ Customerintimacy  Understanding and responding to needs better than competitors  e.g. Cisco Systems, The Keg Steakhouse & Bar, & Dell Corporation ○ Operational excellence  Delivering products & services faster, moreconveniently, & at a lower price than competitor  e.g. WestJet, Walmart,& CNR ○ Product leadership  Offering ↑ quality products than competitors  e.g BMW & RIM • May offer combination of these 3 propositions,one usually outweighs the others (importance) The Planning and Control Cycle - Flow of managementactivities through planning, directing & motivating,& controlling, & then back to planning again (Exhibit 1-1 (p.6)) -> all activities involve decision making The Business Plan - Involves formalizationof strategic planning - Consists of info about the company's basic product/service& the steps it will take to reach its potential market - Includes info about production methods, the competition,the managementteam, & details on how the business will be financed - Key document for the organization's internal management - Exhibit 1-2 (p.6) - Length varies with the nature & complexity of the venture - Must be flexible to adapt in response to market changes - Effective -> should encourage a shared vision with clear targets & well-defined performance measures - Typical plan -> desc of proposed/existingcompany, its products/services,& marketing plan - Operational plans -> details of the financial resourcesrequired & forecasted revenues & expenses Comparison of Financial and Managerial Accounting - Accounting -> recording, estimating, organizing, summarizing (financial & operational data) Financial Accounting Managerial Accounting -Reports to those outside the organization: owners, -Reports to those inside the organization for: planning, directing & creditors, tax authorities, regulators motivating, controlling, performance evaluation -Emphasizes financial consequences of past -Emphasizes decisions affecting the future activities -Emphasizes relevance -Emphasizes objectivity & verifiability -Emphasizes timeliness -Emphasizes precision -Emphasizes detailed segment reports about departments, -Emphasizes summary data concerning the entire products, & customers organization -Need not follow GAAP -Must follow GAAP -Not mandatory -Mandatory for external reports - Managerial accounting places more weight on non-monetarydata (e.g. customer satisfaction data). - Segment: any part of an organization that can be evaluated independently of other parts & about which the manager seeks financial data - Financial accounting -> breakdowns of revenues & costs by major segments in external reports (secondary emphasis), managerial accounting -> segment reporting (primary emphasis) - Purpose of IFRS -> to enhance the comparability& clarity of financial info on a global basis Organizational Structure Decentralization - 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 - Organizationchart: diagram of a firm's organizational structure that depicts formal lines of reporting, co
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