MANAGERIAL ACCOUNTING:

AN OVERVIEW
 MANAGERIAL ACCOUNTING: AN OVERVIEW

• Financial accounting is concerned with reporting

financial information to external parties, such as
stockholders, creditors and regulators.
• Managerial accounting is concerned with providing
information to managers for use within the
organization.
 Accountin
g• Recording Financial and Operational
• Estimating Data
• Organizing
Financial
• Reports to those outside • • Managerial
Reports to managers
Accounting
the organization: Summarizing Accounting
inside
- Owners the organization for:
- Creditors - Planning
- Tax authorities - Controlling
- Regulators - Decision making

• Emphasizes financial
consequences of past • Emphasizes decisions
affecting the future.
activities.
• Emphasizes objectivity • Emphasizes relevance
and
verifiability. • Emphasizes timeliness.
• Emphasizes precision. • Emphasizes segment
• Emphasizes company- reports.
wide
reports. • Need not follow
• Must follow GAAP/IFRS. GAAP/IFRS.
• Mandatory for external • Not mandatory.
 MANAGERIAL ACCOUNTING: AN
OVERVIEW

Managerial accounting helps managers perform three

vital activities: planning, controlling, and decision making.
• Planning involves establishing goals and specifying how
to achieve them.
 MANAGERIAL ACCOUNTING: AN
OVERVIEW

• Controlling involves gathering feedback to ensure that

the plan is being properly executed or modified as
circumstances change.
• Decision making involves selecting a course of action
from competing alternatives.
 MANAGERIAL ACCOUNTING: AN
OVERVIEW

 Plans are often accompanied by a budget.

• A budget is a detailed plan for the future that is usually
expressed in formal quantitative terms.
 MANAGERIAL ACCOUNTING: AN
OVERVIEW

 Control process includes preparing performance

reports.
• A performance report compares budgeted data to
actual data in an effort to identify and learn from
excellent performance and to identify and eliminate
sources of unsatisfactory performance.
 MANAGERIAL ACCOUNTING: AN
OVERVIEW

• Performance reports can also be used as one of many

inputs to help evaluate and reward employees.
 Decision making perhaps the most basic
managerial skill is the ability to make intelligent,
data-driven decisions.
 MANAGERIAL ACCOUNTING: AN
OVERVIEW

• Many of those decisions revolve around the following

three questions:
What should we be selling?
Who should we be serving?
How should we execute?
 MANAGERIAL ACCOUNTING: AN
OVERVIEW

Why Does Managerial Accounting Matter to Your

Career?
What can you do now to prepare for success in an
unknown future career?
The best answer is to learn skills that will make it easier
for you to adapt to an uncertain future.
 MANAGERIAL ACCOUNTING: AN
OVERVIEW

How managerial accounting relates to the future

careers of business majors and accounting majors.
Business majors:
Relating Managerial Accounting to Three Business Majors
Marketing Operations Management Human Resource
Management
Planning How much should we How many units should we How much should we plan
plan to produce next to spend for occupational
budget for TV, period? safety training?
print,
and Internet How much should we plan
advertising? How much should we to spend on employee
How many budget for next period’s recruitment advertising?
salespeople utility expense?
should we plan to
hire to
serve a new
territory?
Controlling Is the budgeted price Did we spend more or less Is our employee retention
cut than expected for the units rate exceeding our goals?
increasing unit sales we actually produced?
as Are we achieving our goal of Are we meeting our goal of
expected? reducing the number of completing timely
Are we accumulating defective units produced? performance appraisals?
too
much inventory
during the
 MANAGERIAL ACCOUNTING: AN
OVERVIEW

• The exhibit 1-3 does not include all business majors,

such as finance, supply chain management,
management information systems and economics.
 MANAGERIAL ACCOUNTING: AN
OVERVIEW

Accounting Majors:
• The public accounting profession has a strong financial accounting
orientation.
• Its most important function is to protect investors and other external
parties by assuring them that companies are reporting historical
financial results that comply with applicable accounting rules.
• Managerial accountants also have strong financial accounting skills.
 MANAGERIAL ACCOUNTING: AN
OVERVIEW

Professional Certifications:
• Certified Management Accountant (CMA).

• Certified Public Accountant (CPA).

 MANAGERIAL ACCOUNTING: AN
OVERVIEW
What Skills Do Managers Need to Succeed?
Managers possess a variety of skills that enable them to do their jobs,
including:
• Strategic management skills.
• Enterprise risk management skills.
• Process management skills.
• Measurement skills.
• Leadership skills.

•
 MANAGERIAL ACCOUNTING: AN
OVERVIEW

• Strategic Management Skills:

Successful managers understand that the plans they set
forth, the variables they seek to control, and the
decisions they make are all influenced by their
company’s strategy.
 MANAGERIAL ACCOUNTING: AN
OVERVIEW

A strategy is a “game plan” that enables a company to

attract customers by distinguishing itself from
competitors.
 MANAGERIAL ACCOUNTING: AN
OVERVIEW

• Enterprise Risk Management Skills:

• Enterprise risk management is a process used by a
company to identify those risks and develop responses
to them that enable it to be reasonably assured of
meeting its goals.
 MANAGERIAL ACCOUNTING: AN
OVERVIEW

• Process Management Skills:

A business process is a series of steps that are followed
in order to carry out some task in a business.
It is quite common for the linked set of steps comprising
a business process to span departmental boundaries.
 MANAGERIAL ACCOUNTING: AN
OVERVIEW

The term value chain is often used to describe how an

organization’s functional departments interact with one
another to form business processes.
Managers frequently use two process management
methods:
• Lean Production.
• The Theory of Constraints.
 MANAGERIAL ACCOUNTING: AN
OVERVIEW

• Measurement Skills:
When you become a manager you’ll need to
complement your understanding of strategy, risks, and
business processes, with data-driven analysis.
 MANAGERIAL ACCOUNTING: AN
OVERVIEW

• The key to being an effective data analyst is to

understand that the question you are trying to answer
defines what you’ll measure and how you’ll analyze it.
 MANAGERIAL ACCOUNTING: AN
OVERVIEW

• Leadership Skills:
Leadership skills will be critical to your career
development for the simple reason that organizations
are managed by people, not data and spreadsheets.
These people have their own personal interests,
insecurities, beliefs, and data-supported conclusions
 MANAGERIAL ACCOUNTING: AN
OVERVIEW

that ensure unanimous support for a given course of

action is the exception rather than the rule.
Therefore, managers must possess strong leadership
skills if they wish to channel their co-workers’ efforts
toward achieving organizational goals.
 MANAGERIAL ACCOUNTING: AN
OVERVIEW

The Importance of Ethics in Business:

A series of major financial scandals involving Enron,
Tyco International, HealthSouth, Adelphia
Communications, WorldCom, Global Crossing, Rite Aid,
and other companies raised deep concerns about ethics
in business.
 MANAGERIAL ACCOUNTING: AN
OVERVIEW

• The Institute of Management Accountants (IMA) of the

United States has adopted an ethical code called the
Statement of Ethical Professional Practice that
describes in some detail the ethical responsibilities of
management accountants.