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Chapter 01 - Lecture Notes
1-1
Chapter 1
Lecture Notes
Chapter theme: This chapter explains why managerial
accounting is important to the future careers of all
business students. It answers two questions: (1) what is
managerial accounting? and (2) why does managerial
accounting matter to your career? It also discusses six
topics that define the business context for applying the
quantitative aspects of managerial accounting.
I. What is managerial accounting?
A. Financial and managerial accounting: seven key
differences
i. Users
1. Financial accounting reports are prepared
for external parties. Managerial accounting
reports are prepared for internal users.
ii. Emphasis on the future
1. Financial accounting summarizes past
activities. Managerial accounting has a
strong future orientation.
iii. Relevance of data
1. Financial accounting data should be
objective and verifiable. Managerial
accountants focus on providing relevant
data even if these data are not completely
objective or verifiable.
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iv. Less emphasis on precision
2. Financial accounting focuses on precision
when reporting to external parties.
Managerial accounting aids decision makers
by providing good estimates as soon as
possible rather than waiting for precise data
later.
v. Segments of an organization
3. Financial accounting is concerned with
companywide reports. Managerial
accounting focuses on segment reports.
Examples of segments include:
a. Product lines, sales territories,
divisions, departments, etc.
vi. Managerial accounting – no externally
imposed rules
4. Financial accounting conforms to GAAP
and IFRS. Managerial accounting is not
bound by GAAP and IFRS.
vii. Managerial accounting – not mandatory
5. Financial accounting is mandatory because
various outside parties require periodic
financial statements. Managerial accounting
is not mandatory.
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B. Managerial accounting helps managers carry out three
main activities—planning, controlling, and decision
making.
i. Planning
1. Planning involves establishing goals and
specifying how to achieve them.
2. Plans are often accompanied by a budget.
a. A budget is a detailed plan for the
future that is usually expressed in
formal quantitative terms.
ii. Controlling
1. Controlling involves gathering feedback to
ensure that the plan is being properly
executed or modified as circumstances
change.
2. Part of the control process includes
preparing performance reports.
a. A performance report compares
budgeted to actual results to improve
future performance.
iii. Decision making
1. Decision making involves selecting a
course of action from competing
alternatives.
2. Many managerial decisions revolve around
answering three questions:
a. What should we be selling?
b. Who should we be serving?
c. How should we execute?
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II. Why does managerial accounting matter to your career?
A. Business majors
i. Marketing majors
1. Planning
a. How much should we budget for TV,
print, and internet advertising?
b. How many salespeople should we plan
to hire to serve a new territory?
2. Controlling
a. Is the budgeted price cut increasing
unit sales as expected?
b. Are we accumulating too much
inventory during the holiday shopping
season?
3. Decision making
a. Should we sell our services as one
bundle or sell them separately?
b. Should we sell directly to customers or
use a distributor?
ii. Supply chain management majors
1. Planning
a. How many units should we plan to
produce next period?
b. How much should we budget for next
period’s utility expense?
2. Controlling
a. Did we spend more or less than
expected for the units we actually
produced?
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b. Are we achieving our goal of reducing
the number of defective units
produced?
3. Decision making
a. Should we transfer production of a
component part to an overseas
supplier?
b. Should we redesign our manufacturing
process to lower inventory levels?
iii. Human resource management majors
1. Planning
a. How much should we plan to spend for
occupational safety training?
b. How much should we plan to spend on
employee recruitment advertising?
2. Controlling
a. Is our employee retention rate
exceeding our goals?
b. Are we meeting our goal of
completing timely performance
appraisals?
3. Decision making
a. Should we hire an on-site medical staff
to lower our healthcare costs?
b. Should we hire temporary workers or
full-time employees?
B. Accounting majors
i. The IMA estimates that more than 80% of
professional accountants in the United States
work in non-public accounting
environments.
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ii. If you are an accounting major there is a high
likelihood that your future will involve
working for a non-public accounting
employer.
iii. This employer will expect you to have strong
financial accounting skills, but more
importantly, it will expect you to help
improve organizational performance by
applying the planning, controlling, and
decision making skills that are the foundation
of managerial accounting.
iv. For accounting majors, the Certified
Management Accountant (CMA)
designation is a globally-respected credential
that will increase your credibility, upward
mobility, and compensation.
v. This slide summarizes the topics included in
the two-part CMA exam. The CMA focuses
on the planning, controlling, and decision
making skills that are critically important to
non-public accounting employers. It
complements the CPA exam, which focuses
on rule-based compliance—assurance
standards, financial accounting standards,
business law, and the tax code.
vi. Information about becoming a CMA and the
CMA program can be accessed on the IMA’s
website at www.imanet.org or by calling 1-
800-638-4427.
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III. Managerial accounting: beyond the numbers
A. Measurement skills
i. The primary purpose of this course is to teach
you measurement skills that managers use
every day to support their planning,
controlling, and decision making activities.
ii. Measurement skills help managers answer
questions such as:
1. What net income should my company report
to its stockholders?
2. How will my company serve its customers?
3. Will my company need to borrow money?
iii. However, managers need to complement their
measurement skills with six business
management perspectives that “go beyond the
numbers” to enable intelligent planning,
control, and decision making.
B. An ethics perspective
i. The IMA’s Statement of Ethical
Professional Practice: guidelines for ethical
behavior
1. Competence
a. Maintain professional competence.
b. Follow applicable laws, regulations,
and standards.
c. Provide accurate, clear, concise, and
timely decision support information.
d. Recognize and communicate
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professional limitations that preclude
responsible judgment.
2. Confidentiality
a. Do not disclose confidential
information unless legally obligated to
do so.
b. Ensure that subordinates do not
disclose confidential information.
c. Do not use confidential information for
unethical or illegal advantage.
3. Integrity
a. Mitigate conflicts of interest and
advise others of potential conflicts.
b. Refrain from conduct that would
prejudice carrying out duties ethically.
c. Abstain from activities that might
discredit the profession.
4. Credibility
a. Communicate information fairly and
objectively.
b. Disclose all relevant information that
could influence a user’s understanding
of reports and recommendations.
c. Disclose delays or deficiencies in
information timeliness, processing, or
internal controls.
ii. The IMA’s Statement of Ethical
Professional Practice: guidelines for
resolution of an ethical conflict
1. Follow the organization’s established
policies for resolving ethical conflict. If this
does not work, consider the following:
a. Discuss the conflict with immediate
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