CORNERSTONES

of Managerial Accounting, 6e

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 CHAPTER 1:
INTRODUCTION TO
MANAGERIAL ACCOUNTING
Cornerstones of Managerial
Accounting, 6e

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The Meaning of Managerial Accounting
 Providing accounting information for a company’s
internal users.
 Managerial accounting is not bound by generally
accepted accounting principles (GAAP).
 Managerial accounting has three broad
objectives:

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The Meaning of Managerial Accounting
(cont.)

actions.
1 • To provide information for planning the organization’s

actions.
2 • To provide information for controlling the organization’s

• To provide information for making effective decisions.

3

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Planning
 The detailed formulation of action to achieve a
particular end is the management activity called
planning.

Example
Setting objectives Improve Quality

Identifying methods to Supplier Evaluation

achieve those objectives Program
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Controlling
 The managerial activity of monitoring a plan’s
implementation and taking corrective action as
needed is controlling.

Compare

Actual Expected
Performance Performance

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Decision Making
 The process of choosing among competing
alternatives is called decision making.

????
Competing Competing
Alternative ???? Alternative
#1 ?? #2

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Financial Accounting and Managerial
Accounting
 Financial Accounting provides information for
external users:
 Investors, creditors, customers, suppliers, government
agencies, and labor unions.
 Financial accounting is historical:
 Investment decisions, stewardship evaluation,
monitoring activity, and regulatory measures.

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license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Financial Accounting and Managerial
Accounting (cont.)
 Financial statements must follow rules defined by:
 Securities and Exchange Commission (SEC)
 Financial Accounting Standards Board (FASB)
 International Accounting Standards Board (IASB).
 Managerial Accounting produces information for
internal users, such as managers, executives,
and workers.

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license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Financial Accounting and Managerial
Accounting (cont.)
 Managerial accounting Internal accounting

 Financial accounting External accounting

 Managerial Accounting identifies, collects,

measures, classifies, and reports financial and
nonfinancial information to internal users in
planning, controlling, and decision making.

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 Comparison of Financial and Managerial
Accounting

Financial Accounting Managerial Accounting

Externally focused Internally focused
Must follow externally imposed rules No mandatory rules

Objective financial information Financial and information; subjective

information possible nonfinancial

Historical orientation Emphasis on the future

Information about the firm as a whole Internal evaluation and decisions
based on very detailed information

More self-contained Broad, multidisciplinary

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Current Focus of Managerial Accounting
 The business environment in which companies
operate has changed

 Effective managerial accounting systems provide

information that helps improve companies’
planning, control, and decision-making activities.

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Current Focus of Managerial Accounting
(cont.)
Important uses of managerial accounting:
1. New methods of estimating product and service
cost and profitability
2. Understanding customer orientation
3. Evaluating the business from a cross-functional
perspective
4. Providing information useful in improving total
quality.

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New Methods of Costing Products and
Services
 Today’s companies need focused, accurate
information on the cost of products and services
produced.
 Activity-based costing (ABC) is a more detailed approach
to determine the cost of goods and services.
 ABC improves costing accuracy by emphasizing the
cost of the many activities or tasks that must be done to
produce a product or service.

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New Methods of Costing Products and
Services (cont.)
 Process-value analysis focuses on the way in which
companies create value for customers.
 Find ways to perform necessary activities more
efficiently and eliminate those that do not create
customer value.

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Value Chain
 Successful pursuit of cost leadership and
strategies
 The value chain is the set of activities required to
design, develop, produce, market, and deliver
products and services, and provide support
services to customers.

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Value Chain (cont.)

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The Role of the Managerial Accountant
 The role of managerial accountants is one of
support.
 Assist those who are responsible for carrying out
an organization’s basic objectives.
 Positions that have direct responsibility for the
basic objectives of an organization are line
positions.

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The Role of the Managerial Accountant
(cont.)
 Positions that are supportive in nature and have
only indirect responsibility for an organization’s
basic objectives are staff positions.
 The controller supervises all accounting
functions and reports directly to the general
manager and chief operating officer.
 In larger companies, the controller is separate
from the treasury department. The treasurer is
responsible for the finance function.

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Managerial Accounting and Ethical Conduct

 The objective of profit maximization should be

constrained by the requirement that profits be
achieved through legal and ethical means.
 Ethical behavior involves choosing actions that
are right, proper, and just.

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Managerial Accounting and Ethical Conduct
(cont.)
 Behavior can be right or wrong; it can be proper
or improper; and the decisions we make can be
fair or unfair.
 Companies in business for the long term find that
it pays to treat all with honesty and loyalty.

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Certification
 Three major forms of certification for managerial
accountants:
 Certificate in Management Accounting
 Certificate in Public Accounting
 Certificate in Internal Auditing
 Each certification offers particular advantages to
a managerial accountant.
 All three certifications offer proof of achievement
at a minimum level of professional competence.

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