LUNA, JOHN JULIUS

MBA - ACC

REPORT: INTRODUCTION TO MANAGERIAL ACCOUNTING

What is Managerial Accounting?

Managerial accounting, or management accounting, is the branch of accounting that focuses on

providing information for use by internal users.

Internal users pertain to those working within the company, specifically the management.

As defined by the American Accounting Association,

"Managerial accounting involves the application of appropriate techniques and concepts in processing
information to assist management in establishing plans and making rational decisions towards the
achievement of the organization's objectives."

Line and Staff Function

There are two broad functions in an organization: line and staff. Line function is the one that is directly
involved in the core operations of the company such as sales and production. Staff function, on the
other hand, provides advisory and support to the organization.

Generally, management accountants exercise staff functions. They support the company by providing
information to enable decisions which are vital for the company's performance and continuity.

The Chief Management Accountant (or controller) exercises line function over his or her subordinates,
and performs staff functions to the other members of the management.

The Management

1. Top management - The top management or administrative level consists of the Chief Executive
Officer (CEO) and the board of directors (BOD). The CEO is also called the managing director or
president, and is selected by the board of directors from among themselves. The BOD is selected
by the shareholders to represent them in managing the company. The top level management is
in-charge with the overall direction of the company. They set company goals, policies and long-
term plans.

2. Middle management - Also known as executory management, the middle-level management

consists of departmental heads and branch managers. They implement and execute the plans
and policies set by the top managements. The middle management is the intermediary between
the top and low level management. They report to the top management as well as communicate
the plans of the top level to the lower levels.

3. Low level management - The low level management or front-line management is responsible in
directing and controlling the day-to-day operations of the company. They report directly to the
middle management. The lower level management consists of supervisors, foremen, and
officers who are in-charge of directing workers and employees.
Chief Management Accountant (Controller)

The Chief Management Accountant or Controller, sometimes "Comptroller" especially in government

agencies, is mainly responsible for the accounting aspects of management planning and control. The
controllership department carries out the following functions:

1. Planning and control - such as making budgets and determining expectations regarding future
outcomes of alternative courses of action

2. Internal reporting and interpreting - accumulating and summarizing financial data and
disclosing its implications to different levels of management

3. Evaluation and consulting - assessing different alternatives giving advice to the management to
come up with appropriate decisions

4. Tax administration - supervising the formulation and implementation of tax policies and
procedures of the organization and evaluating implications of tax-related decisions

5. External reporting - preparation of financial statements in accordance with appropriate

accounting standards to meet the information needs of external users, especially the
government

6. Protection of assets - implementing internal controls, insurance and performing internal audits
to protect the company from losing its assets because fraud, theft, natural disasters, etc.

7. Economic appraisal - assessing the value the economic and social and government influences,
and interpret their effects or impact on the business

Often compared to the controllership function is the treasurership function. Both the controller and the
treasurer report directly to the company's head of finance. While the controller's functions
involve internal finance and accounting, the treasurer's responsibilities involve external
finance and cash functions.

The functions of the treasurer include: (1) provision of capital, (2) investor relations, (3) short-term
financing, (4) banking and custody, (5) credit and collections, (6) investments, and (7) insurance.

Conclusion

Managerial accounting processes economic information to aid the management in making decisions. It is
not mandatory yet very important. Without managerial accounting, a business would suffer in
information deficiency leading to uninformed decisions that are detrimental to the entity's performance
and even to its existence.
ESTANISLAO, KIM PAOLO B.
 A social unit of people that is
structured and managed to meet a
need or to pursue collective goals.
All organizations have a
management structure that
determines relationships between
the different activities and the
members, and subdivides and
assign roles, responsibilities, and
authority to carry out different
tasks. Organizations are open
systems they affect and are
affected by their environment.
• Determines how the roles,
power and responsibilities are
assigned, controlled, and
coordinated, and how
information flows between the
different levels of management.
FORMAL STRUCTURES - A
typical organization chart
illustrates the formal structure
at work in a company or part of a
company. The hierarchical
organization begins at the top
with the most senior leader and
then cascades down to the
subordinate managers and then
subordinate employees below
those managers.
 INFORMAL STRUCTURES -
typically develop around social
or project groups. Because
informal structures are based on
camaraderie there is often a
more immediate response from
individuals. This saves people
time and effort, thus making it
easier to work within informal
structures. People also rely on
informal structure if the formal
structure has stopped being
effective, which often happens
as the company grows or
changes but doesn’t reevaluate
its hierarchy or work grounds.
- SUCCESSION. A strong organizational structure is better able to prepare
qualified employees for management.

- FOCUS ON STRATEGY. Using a strong organizational structure allow a

company to better focus on a single set of goals instead of each group
working towards its own agenda, according to family business experts.
- TRAINING. A good organizational structure makes employee training
easier to administer, and it also allows it to remain flexible based on the
changes within the organization.

- DECISION MAKING. An organizational structure can make decision

making a more efficient process. When a defined hierarchy is in the
place, the company is better equipped to make important decisions and
adjust practices to meet the demands of competition.
- FACILITATES SPECIALIZATION. Organizational structure facilitates division
of work since each boss has specialized knowledge on his field of work.

- CONTROL OVER RESOURCES. Organizational structures simplify control

over resource because these resources can be rationed and allotted to the
various units.

- EASIER COMMUNICATIONS. Organizational structures clearly state who

reports to whom. A subordinate cannot report directly to the manager before
communicating with his immediate supervisor.

- BETTER EMPLOYEE PERFORMANCE. Organizational structures clearly

show various jobs to be performed by employees which supervisor will
manage them. The supervisor trains them out of his own experience or from
the rules of the organization and helps they become better performers.
 is the process of collecting, analyzing and/or
reporting information regarding the
performance of an individual, group,
organization, system or component. It can
involve studying processes/strategies within
organizations, or studying engineering
processes, parameters, phenomena, to see
whether output are in line with what was
intended or should have been achieved.
1. ATTENDANCE
2. HELPFULNESS
3. EFFICIENCY
4. INITIATIVE
5. QUALITY
ATTENDANCE
- IF A TEAM MEMBER IS CONSISTENTLY
SHOWING UP LATE, LEAVING EARLY, OR
TAKING AN UNUSUAL NUMBER OF SICK
DAYS, THEY’RE NOT SHOWING THEIR FULL
POTENTIAL.
HELPFULNESS
‐ HELPFULNESS IS IMPORTANT FOR
FOSTERING A CULTURE OF TEAMWORK,
ALLOWING YOUR TEAM TO PERFORM
BETTER WHEN TACKLING DIFFICULT TASKS,
TOGETHER.
EFFICIENCY
- TEAM MEMBERS NEED TO BE ABLE TO
COMPLETE THEIR WORK ON TIME. THEY
SHOULD HAVE A GOOD HANDLE ON THE
LIMITATIONS PROVIDED TO GET THINGS
DONE AS EFFICIENTLY AS POSSIBLE.
INITIATIVE
- LOOKING AT TEAM MEMBERS WHO TAKE
INITIATIVE IS ALSO IMPORTANT FOR
GROWING BUSINESSES AND FOR RAPIDLY
CHANGING WORKPLACES THAT REQUIRE
PEOPLE WHO CAN ADAPT AND BE
PROACTIVE.
QUALITY
- THE QUALITY OF WORK YOUR TEAM
MEMBERS PUT OUT IS PERHAPS THE MOST
IMPORTANT METRIC, BUT IT IS ALSO THE
MOST DIFFICULT TO DEFINE. TEAM
MEMBERS WHO CARE ABOUT WHAT THEY
DO AND ARE ENGAGED AT WORK WILL
LIKELY PERFORM BETTER, AND IT’S A
GOOD IDEA TO RECOGNIZE RESULTING
ACHIEVEMENTS.
 

Managerial Accounting  

Internal control system and the controllers role 

in investor relations 
Submitted to: Dr. Erlinda Daquigan 
Submitted by: Emmanuel Fernando C. Jimenez 
Masters in Business Administration 
National College of Business Administration 
 

Introduction: 
A system of internal control refers to how businesses maintain environments that 
deter fraudulent activities by management and employees. An organization’s 
components of internal control are evaluated during the planning phase of an 
independent financial statement audit. The results of the evaluation influence the 
level of detail the auditor will examine. To reduce detailed testing, and perhaps the 
audit fee, implement the common features of a proper internal control system at 
your business. 

 
 
 

Components of an internal control system 

1. Control environment​. This is the attitude of management and their 
employees regarding the need for internal controls. If the controls are taken 
seriously, this greatly enhances the robustness of the system of internal 
control. 
2. Risk assessment.​ This is the process of reviewing the business to see where 

the most critical risks lie, and then designing controls to address those risks. 
This assessment must be conducted on a regular basis, to take into account 
any new risks introduced by changes in the business. 
3. Control activities.​ This is the use of accounting systems, information 

technology, and other resources to ensure that appropriate controls are put 
in place and operating properly. For example, there may be accounting 
systems in place to periodically conduct ​inventory audits​ and ​fixed asset 
audits. In addition, there may be off-site backups to minimize the risk of lost 
data. 
4. Information and communication.​ Information about controls should be 

communicated to management in a timely manner, so that shortfalls can be 

addressed promptly. The amount of information communicated should be 
appropriate to the needs of the recipient. 
5. Monitoring.​ This is the set of processes used by management to examine 

and assess whether its internal controls are functioning properly. Ideally, 
management should be able to spot control failures and make adjustments 
to improve the control environment. 

 
 
2 
 
 

Common features and roles 

Management Integrity  

● Keeps the moral character of managers at your business sets the overall 
tone for the workplace.  
● Communicates to workers through employee handbooks and procedural 
manuals. Provides employees with necessary training on company policies 
and expected behaviors.  
● Major indicator of an organization’s commitment to a successful internal 
control system. 

Competent Personnel 

● Recruiting and retaining competent personnel helps a business properly 

record accounting transactions from year to year by providing consistency.  
● Observes the reliability of the organization’s personnel.  
● Reduces an auditor’s assessment of the risk of a material misstatement in 
the entity’s financial statements. 

Segregation of Duties 

● Reduces the risk of mistakes and inappropriate actions.  

● Separates authoritative, accounting and custodial functions.  
○ IE: one employee opens incoming mail, a second prepares deposit slips for 
daily receipts, while a third deposits receipts in the bank. The previous 
example prevents the opportunity of one employee to misappropriate 
incoming funds. 

 
3 
 
 
Records Maintenance 

● Keeps appropriate records ensures that documentation exists for each business 
transaction.  
● Involves storing, safeguarding and eventually destroying tangible or electronic 
records.  
● Sets back-up deters an employee or managers from creating phantom transactions 
in the underlying accounting records.  
● Reduces operating costs, improves efficiency and minimizes the risk of litigation. 

Physical and Intangible Safeguards 

● Keeps unauthorized personnel from accessing valuable company assets. Safeguards 

are physical, such as locks on doors, or intangible, such as computer software 
passwords, and are a necessary feature of an organization’s internal control system.  
● Protects inventory, cash and supplies. However, blank checks, company letterhead 
and signature stamps are items that require safeguarding but are commonly 
overlooked. 

 
 

 
4 
 INTERNAL AUDIT
FUNCTION

Presented by:
Ilonah Lualhati
MBA- Managerial Accounting
July 13, 2018
What is internal auditing?
Internal auditing is an independent, objective
assurance and consulting activity designed to add
value and improve an organization's operations.
It helps an organization accomplish its objectives
by bringing a systematic, disciplined approach to
evaluate and improve the effectiveness of risk
management, control, and governance
processes. ”
Internal auditors have the professional duty to
provide unbiased and objective view. They must
be independent from the operations they
evaluate and report to the highest level of
organization, typically the board of investors or
board of trustees, accounting offices and audit
committee.
Internal auditors are expected to apply and
uphold the following principles:

• Integrity
• Objectivity
• Confidentiality
• Competency
INTERNAL AUDITOR VS. EXTERNAL AUDITOR
INTERNAL AUDITOR EXTERNAL AUDITOR

Auditors are part of the organization Not part of the organization, but are
engaged by it.

Appointed by management Appointed by owners of organization

Reporting to management who are within Reporting to shareholders/owners or

the organisations governance structure. members who are outside the
organisations governance structure.

To advice and make recommendations on To form opinion on whether the financial

the internal control and corporate statements provide a true and fair view.
governance

May be a non-CPA Must be CPA

 THE ROLES & FUNCTIONS OF
INTERNAL AUDIT
“The role of internal audit is to provide
independent assurance that an organization’s
risk management, governance, and internal
control processes are operating effectively.”

Source: Institute of Internal Auditors

 THE ROLES & FUNCTIONS OF
INTERNAL AUDIT
• Monitor and assist the Company with Risk
Management
• Assess compliance with policies and procedures
and sound business practices.
• Ensure that all laws, rules and regulations
governing the operations of the organization are
adhered to.
• Investigate reported occurrences of fraud,
embezzlement, theft, etc.
• Recommend improvement in controls
 Preventive Measures
• Make sure your controls are working
• Review and reconcile
• Check the work of your subordinates
• Don’t give in to the temptation to skip
controls because you are busy!
The Planning Function of Controllership
BUSINESS PLANS and PLANNING
INTERRELATIONSHIPS OF PLANS
STRATEGIC PLANNING
The Controller's Function
The work of the Managerial Accountant
(TOPIC)
Decision Making
Good decision making is rarely done by intuition. Consistently
good decisions result from diligent accumulation and evaluation of
information. Managerial accounting provides the information needed
to fuel the decision-making process. Managerial decisions can be
categorized according to three interrelated business
processes: planning, directing, and controlling. Correct execution of
each of these activities culminates in the creation of business value.
Conversely, failure to plan, direct, or control is a road map to failure.
The central theme is this: (1) business value results from good
decisions, (2) decisions must occur across a spectrum of planning,
directing, and controlling activities, and (3) quality decision making
can only consistently occur by reliance on information.
What are the basic functions
of Controllership?
 The basic functions of controllership?
• Is responsible for ensuring that all accounting allocations are
appropriately made and documented.
• May also perform cash management functions and oversee accounts
payable, accounts receivable, cash disbursements, payroll and bank
reconciliation functions.
• Is accountable for the accounting operations of the company, to include
the production of periodic financial reports, maintenance of an adequate
system of accounting records.
• a comprehensive set of controls and budgets designed to mitigate risk,
enhance the accuracy of the company's reported financial results.
• ensure that reported results comply with generally accepted accounting
principles or international financial reporting standards
A management control system maintains a detailed level of oversight over the use
of resources within a business. The system assigns responsibility for resource
consumption to various individuals, whose performance is judged based on their
ability to manage resources in the most effective manner possible. The control system
works best when performance is tied to the goals of the organization. The information
used in a management control system is based on a budget or other plan that is
compared to actual results, with variances being reported to responsibility centers
throughout the organization. Some of the techniques that can be used in this type of
system are:
• Activity-based costing
• Budgeting and capital budgeting
• Program management
• Risk management
• Target costing
• Total quality management
Cost Accounting…
Cost accounting is an accounting method that aims to capture a
company's costs of production by assessing the input costs of each
step of production as well as fixed costs, such as depreciation of
capital equipment. Cost accounting will first measure and record
these costs individually, then compare input results to output or
actual results to aid company management in measuring financial
performance.
Types of Costs…

• Fixed Costs are costs that don't vary depending on the amount of work a
company is doing. These are usually things like the payment on a building,
or a piece of equipment that is depreciating at a fixed monthly rate.
• Variable costs are tied to a company's level of production. An example
could be a coffee roaster, which after receiving a large order of beans from a
far-away locale, has to pay a higher rate for both shipping, packaging, and
processing.
• Operating costs are costs associated with the day-to-day operations of a
business. These costs can be either fixed or variable depending.
• Direct costs are the costs related to producing a product. If a coffee roaster
spends 5 hours roasting coffee, the direct costs of the finished product
include the labor hours of the roaster, and the cost of the coffee green. The
energy cost to heat the roaster would be indirect because they're inexact,
hard to trace.
 Organizational Structure of the Accounting Department

• The controller does not operate alone to complete all the tasks outlined
through the last few sections. On the contrary, quite a large accounting staff
may complete the bulk of the work. In this section, we review the structure of
the typical accounting department and the tasks completed by each part of it.

• The controller is usually helped by one or more assistant controllers

who are assigned different sets of tasks. For example, one may be in charge
of the more technically difficult general ledger, tax reporting, financial
analysis, cost accounting, and financial reporting tasks, while another covers
the major transactions, which are accounts payable, accounts receivable,
payroll, and cash application.
For smaller organizations, there may also be managers for the human
resources and MIS functions who are at the assistant controller level and who
also report to the controller. Below these managers are a number of
subcategories, staffed either by clerks or degreed accountants, who are
responsible for specific tasks. These subcategories are:
• Financial analysis
• Cost accounting
• Financial reporting
• General ledger accounting
• Payroll processing.
• Tax form preparation and filing
• Transaction processing
• Cost accounting. This position is filled by a degreed accountant who
conducts job or process costing and verifies the inventory valuation.
• Financial analysis. This position is filled by a degreed accountant who
compiles both standard and special-request analysis reports.
• Financial reporting. This position is filled by either a degreed accountant
or a senior-level bookkeeper who prepares the financial statements and
accompanying footnotes, as well as other periodic reports for public
consumption if the company is publicly held.
• General ledger accounting. Frequently combined with the financial
reporting function, this is staffed by similar personnel and is involved with
the review and recording of journal entries and summary entries for
subsidiary journals.
Transaction processing. This position is filled by clerks (usually
comprising the bulk of all department headcount) who process all
accounts payable, accounts receivable, and cash application
transactions in accordance with rigidly defined procedures.
The positions most likely to be needed by a controller are those
responsible for transactions, which are the clerks responsible for billing,
collections, payables, and payroll. Here are the job requirements for
these positions:
• Billing Clerk
• Collections Clerk
• Payables Clerk
• Payroll Clerk
Business Plan
Included in a business plan are the ff:

• A business plan conveys your business goals

• The strategies you'll use to meet them

• Potential problems that may confront your business and ways to solve them

• The organizational structure of your business (including titles and

responsibilities)

• Finally, the amount of capital required to finance your venture and keep it going
until it breaks even.
Three primary parts to a business plan:

1. business concept

2. marketplace section

3. financial section
A business plan consists of seven key components:
• Executive summary
• Business description
• Market strategies
• Competitive analysis
• Design and development plan
• Operations and management plan
• Financial factors
Strategic Planning: Prepare, Create, & Deploy Your Strategy

You’ve likely heard that nine out of 10 organizations fail to execute their strategies.
The natural question, then, is why? The answer is complex. Strategies fail for hundreds of
reasons: Some are poorly researched, some don’t involve the right people, and others
simply don’t track the right elements.
The three critical phases- guide to strategic planning

Gather your team and create a timeline

Confirm your mission and vision statements.
Launch your strategy.
FINANCIAL IMPACT OF THE
STRATEGIC PLAN
Strategic Planning and
Decision Making Process

Vision
Statement

Strategy
Implementation Mission
and Statement
Management

Strategy
Analysis
Formulation
What Financial Problems May Affect
Strategic Planning
 Strategic Vision
 Financial Planning
 Operational Performance
 Strategy Development
Corporate Planning

 A formal, systematic, managerial process, organized by responsibility, time

and information, to ensure that that operational planning, project planning
and strategic planning are carried out regularly to enable top
management to direct and control the future of the enterprise.
Strategic Planning

 The process of making decisions which will tend to optimize the

organization’s future position despite changes in future
environments.

 Strategic planning is concerned with preparing long-term action

plans to attain the organization’s objectives by considering the
changes at horizon.
Project Planning

 Capex Planning or Capital Expenditure Planning

 Entails detailed plans involving acquisition of new property, plant and

equipment, creation of new products, modification or acquisition or
adoption of new systems, and acquisition of new entities.
Operational Planning

 How to efficiently and effectively utilize the entity’s resources to achieve

the company’s short-term and long-term objectives set up during strategic
planning.
Role of Management Accounting in
Corporate Planning
 Where are we?
 The management accountant interprets the current financial position of the
company to detect areas of strengths and weaknesses as indicated by the
measures of liquidity or short-term solvency, profitability and stability.

 How did we get here?

 This requires an interpretation of historical data which may reveal the causes of
current financial stability or difficulty such as sufficiency or insufficiency of fund
inflows from operations, inability to plough back earnings by declaring annual
net income as dividends, and unprofitable operations of some sub-units.
 Where do we want to go?
 The implementation process is undertaken with the use of annual operating plans
and the annual budget. Management accounting assists by providing
management with quantitative information such as cost and expense data,
expected availability of resources from projected financial statements and the
possible effects of changes in corporate activities on financial resources.
Programming

 The process of determining the different major activities of an enterprise

geared towards the attainment of its objectives and the sequence in which
they are to be accomplished.
Budgeting

 a process whereby future income and expenditure are decided in order to

streamline the expenditure process.
Approaches to Budgeting Process
Sales Budget

 Sales budget outlines the forecasted income stream of the business.

It is usually the first budget to be prepared as the revenue
generated will ultimately determine the level of expenditure.
 Previous pattern of sales
 Economic conditions e.g. rate of inflation, interest rate, exchange rate,
economic growth rate
 Political conditions
 State of competition in the market
 Other factors that can affect the sales e.g. technology, etc.
Production Budget

 It determines the number of units of a product that will be produced by the

business. It also determines the cost at which the products have to be
produced. Production budget is made according to the sales budget.
Labor, Overhead, and SG&A Budget
 The direct labor budget is prepared. Labor that participates in the
production process forms the direct labor cost. This budget is
prepared according to the number of labor hours and the cost per
hour.

 Overheads are those costs that are not incurred directly in the
production of goods, but are indispensable with regard to the
production activity e.g. rent of the factory. The budget of the
overhead cost is prepared in relation to the direct labor hours.

 SG&A costs are incurred in order to conduct the day to day

operations of a business. They consist of fixed and variable costs.
Cash Budget

 Cash budget helps to formulate in advance the payment and

receipt cycles of the business and thus it ensures that cash is readily
available to a business. By formulating cash budget, the business
can keep track of its accounts receivables and accounts payable.
In order to avoid shortage of cash, the business can arrange its
credit plans related to accounts receivables and accounts payable
accordingly.
Budgeted Financial Statements

 Budgeted financial statements are prepared on the basis of each

budget component. These budgeted financial statements are
called pro forma financial statements. Through the budgeted
financial statements, a business will be able to forecast its profits.
Profit forecasting is important because it will determine the viability
of carrying out the business.
Budgeting Models

 Flexible Budgeting
 Fixed or Static Budgeting
 Continuous or Rolling Budgeting
 Zero – Based Budgeting
 Life – Cycle Budgeting
 Activity – Based Budgeting
 Kaizen Budgeting
 Governmental Budgeting
IMPORTANCE OF BUDGETS

 Budgets Set Targets

 Strategy Requires Funding
 Budgets Communicate Priorities
 Control Spending
 Eliminate Turf Wars
 Provides a Profit Margin
PLANNING AND CONTROLLING
OPERATIONS
Patayan, Krizelle S.
NCBA - MBA
Budgeting
• Financial and Nonfinancial planning to satisfy
organizational goals and objectives
• Creating a plan to spend your money
• Spending plan is called the budget
Importance of Budgeting
• Important tool of managerial control as
Managers make decisions in budget
preparation that serve as a plan of action
• Ensures that you will always have enough
money for the things you need and the things
that are important
Planning and Controlling Process
Plan

Decisions to
Action taken to
change operations
implement plan
or revise plans

Results

Decisions to Comparison of
reward or punish planned and actual
managers results

Evaluation
Planning
Plan

• Identifying alternatives and

selecting a course of action and
specifying how the action will be Action taken to
implemented to further the implement plan

organization’s objectives.

– Financial plan will help you make

smart spending choices today
while preparing for tomorrow
– Help you achieve your goals and
prepare from unexpected bumps in
the road
Controlling
• Performance reports compared
Results
to actual with planned
(budgeted) performance
• Accounting Control Reports – Comparison of
planned and actual
Cost variance analysis, financial results
statements analysis, gross profit
variance analysis, etc. Evaluation
• Operations are evaluated to
provide information as to
whether or not they should
changed (i.e., expanded,
contracted, or modified in some
way)
Decision Making
• Decisions are made to reward
Decisions to
or punish managers change operations
or revise plans
• Decisions are made to change
operations or revise plans Decisions to
reward or punish
• Should we add a new product? managers

• Should we drop an existing

product?
 ACCOUNTING / STATISTICS
STANDARDS: BENCHMARKING
Accounting / Statistical Control

Funds Flow

Judicious
Cash Receipts Investment of
Cash

Protection
Cash Accounting from
Disbursements Unauthorized
Control Use
Accounting / Statistical Control
Development
time for new
products
Cycle time –
Customer
order to
Satisfaction
delivery

Statistical
Control
Need for Standards
• Standard or action plan
• Standards are the foundation and basis of
effective accounting control
• Provides the management tools with which
to measure and judge performance
Advantages

1 • Controlling Costs

2 • Setting Selling Prices

3 • Valuing Inventories

4 • Budgetary Planning
1. Controlling Costs
• Standards provide a better measuring stick of
performance
• Use of the “principle of exception” is
permitted
• Economies in accounting costs are possible
• A prompter reporting of cost control
information is possible
• Standards serve as incentives to personnel
2. Setting Selling Prices
• Better cost information is available as a basis
for setting prices
• Flexibility is added to selling price data
• Prompter pricing data can be furnished
3. Valuing Inventories
• A “better” cost is secured
• Simplicity in valuing inventories is obtained
4. Budgetary Planning
• Determination of total standard costs is
facilitated
• The means is provided for setting out
anticipated substandard performance
Types of Standards Needed
• All business functions such
1) For All Business
as selling, production,
Activity
finance, and research

• Costs are controlled by

2) For Individual
people
Performance

• Primary basis for material

3) Material
cost control
Quantity
Types of Standards Needed
• Expected cost instead of a
4) Material Price desired or “efficient” cost

• Amount of labor needed

5) Labor Quantity to produce a product

• Generally determined by
6) Labor Rate outside factors
Types of Standards Needed
• Varies from plant activities
7) Manufacturing • Several people handles the control
Overhead Expense • Should be accurate and precise

• Controlling and measuring the

8) Sales effectiveness of the sales of
marketing operations

• Valuable aid in properly

9) Distribution Cost directing the selling effort
Types of Standards Needed

10) Administrative
Expense

• Financial condition and

profitability rates
11) Financial • Testing business plans and
Ratios the financial health
Benchmarking
• The process of comparing an organization’s
products and activities with those of other
organization’s to determine best practices
• It is a complicated process

• Types:
1) Competitive Benchmarking
2) Noncompetitive Benchmarking
3) Internal Benchmarking
Benchmarking Process
Key Who is the
What to
Performance “best-in-
Benchmark?
to Measure class”?

What and Why are they

Compare
How? best-in-class?

Implement
and Monitor
MANAGERIAL ACCOUNTING
 Planning and Control of Sales

Primary responsibility for the planning and control of sales, rests with the chief
sales or marketing executive of the company or the business segment. However, the
chief accounting officer, with the knowledge of costs and cost behavior as well as the
familiarity with sales accounting and analysis, is in a position to use these skills to
assist the various marketing executives. Some of the areas where the controller might
be helpful include:
• Selection and application of ratio and trend analysis to develop or verify sales level
trends and relationships
• Analysis and assembling of the proposed sales plan/budget
• Development and application of sales standards for use by the marketing
executive, if applicable
• Application of the relevant costs as a factor in setting product sales prices

While the controller has a supporting role to the chief sales executive with respect to
sales planning and control, there are also some basic independent responsibilities, as
a member of the financial staff, to see that adequate procedures are followed and that
the sales planning and control is sound from a financial or economic viewpoint.
Sales Management Concerns
The tasks of any management function are many, varied, and complex. Sales
management is certainly confronted with a broad range of problems.

Although there are many types of problems encountered in the sales management
function, there may be some that are found in most companies. The following is
representative of some of the fundamental questions that are constantly raised:
□Product.
□Pricing.
□Distribution.
□Method of sale.
□Organization.
□Planning and control.
 Controller’s Assistive Role in Sales Management Problems
An intelligent executive will always seek any assistance available.
The controller can help by bringing to bear a scientific, analytical
approach, using judgment as well as imagination.

The degree of assistance the controller can render in solving the previously
mentioned sales problems is indicated in the following outline:
1.Problems of product.
2.Problems of price.
3.Problems of distribution. Questions of policy may relate to:
(a)The minimum order to be accepted
(b)Restriction of the sales effort on large volume accounts that purchase
only low-margin products or are unprofitable because of special laboratory
service
(c)Desirability of servicing particular types of accounts through jobbers,
telephone, mail order, and so forth
(d)Discontinuance of aggressive sales effort on accounts where annual sales
volume is too low
(e)Best location for branch warehouses
4.Problems relating to the method of sale.
5.Problems of organization.
6.Problems of planning and control.
The accounting official may contribute in the following ways:
(a)Sales budgets and quotas.
(b)Distribution expense budgets and standards.
(c)Monthly or periodic income and expense statements:
(i) By territories
(ii) By commodities
(iii) By methods of sale
(iv) By customers
(v) By salespersons
(vi) By organization or operating divisions
(d)Special analyses to reveal conditions needing correction or as an audit
of performance:
(i) Sales incentive plans.
(ii) Branch office and warehouse expense.
(iii) Customer development expense.
(iv) Salespeople’s compensation and expenses.
Controller’s Independent Role in the Planning and Control of Sales

The primary responsibility for the development of the sales plan and
its subsequent implementation is that of the chief sales executive.
The controller can be of substantial assistance to the sales executive
in supplying analytical and historical data for use in planning and
control decisions. It should not be assumed that the controller will
provide only the data the sales executive wants and that the
controllership role is by and large a passive one as to sales activity.

For most companies, the responsibility of the controller and staff

extends to the following outline of functions in the development of a
sound annual sales plan and the related implementation:
1.The planning phase
2.The control phase
Sales Analysis
The stress sometimes placed on sales volume can be misleading. If a business were
to ignore the profit factor, it could probably secure any desired volume. Through the
cutting of prices or through the spending of huge amounts on direct selling expense
or sales promotion or advertising, volume itself could be secured.
If business is to achieve profitable sales, it must know where the areas of greatest
profit are. This means both sales analysis and cost analysis.
Types of Sales Analyses Needed
What is needed, then, is detailed analysis to guide sales effort. Some required
analysis relates solely to past sales performance as such. Other studies involve the
determination of trends by comparison with previous periods.
The types of analyses frequently used are:
□Product □Territory
□Channel of distribution □Method of sale
□Customer □Size of order
□Terms of sale □Organization
□Salesperson
Other analyses relating to unrealized sales may also be useful, for example:
□Orders received □Unfilled orders
□Cancellations □Lost sales
Deductions from Sales
These factors may reveal why unit prices appear low.

Typical Conditions Found by Sales Analysis

In many businesses, a large proportion of the sales volume is done in a small share of the
product line. Likewise, a relatively small proportion of customers will provide the bulk of the
volume. Such conditions reflect the fact that only a very small part of the selling effort is
responsible for most of the business.

Sales and Gross Profit Analysis

Sales efforts should be directed and focused on profitable volume. To accomplish this, sales
executives must be provided with all the facts related to profit. Therefore, analysis of sales
must include a detailed analysis of contribution margin and/or gross profit.

Sales Throughput Analysis

The basic concept of throughput management is to locate the bottleneck in an operation
and implement a variety of techniques to eliminate or at least reduce the impact of that
bottleneck, such as by having an adequate inventory buffer in front of it, supplementing it
with similar work centers (even if less efficient), outsourcing work, or by shifting quality
inspectors to a spot in front of the work center (which prevents flawed work-in-process from
entering the bottleneck operation). Through- put concepts have primarily been presented as
a solution for just the production area, but they can also be used effectively in the sales
department.
Sales Planning: Basis of All Business Plans
Sales analysis is a useful function. As mentioned in the prior section, it may be
applied to better direct and control sales effort, and for other related sales control
activities. Yet, one of the other principal applications is to sales planning, that is,
in helping to determine a proper sales level (by product or territory or salesperson,
etc.) for the next year or two of the annual business plan. The application to sales
planning is also used in selecting the more profitable sales potential areas for the
strategic, or long-range, plan.

As a practical matter, the sales manager often will view the marketing task as
threefold:
• Sales of existing products and/or services to existing customers
• Sales of existing products/services to new customer
• Sales of new products to existing, as well as new customers
Useful Sources of Forecasting Information

Business executives long have been intrigued by the promise of a practical indicator of
business trends that could be useful in their business forecasting. Some have found
broad economic measures helpful, such as gross national product (GNP), new car
sales in a given territory, and so forth. But for many, no practical guide has been
located either for the business as a whole or for major lines. Many of the broad
indicators have suffered from late availability, significant revisions, inaccuracies in
compilation, and components out of touch with the market, to name a few. The
controller should be aware of external sources of sales forecasting data just in case
the present sales estimating techniques could stand some testing or improvement.
There are numerous sources, ranging from the federal government to selected financial
services, such as Standard & Poor’s (S&P) and Moody’s, that supply information that
may be useful in sales forecasting. Market planners, market research analysts, and
many financial executives often are familiar with them. Of course, libraries may provide
assistance on this subject. The secret is to find an index or economic data useful in a
particular business.
A partial listing of some sources follows:
□ Bureau of Economic Analysis (BEA)
□ Department of Labor
□ Bureau of Labor Statistics
Forecasting the Business Cycle
• Nature of the Business Cycle
A business cycle is a recurring series of expansions and contractions, involving and driven
by a vast number of economic variables, that manifests itself as changes in the level of
income, production, and employment. A business cycle tends to be long-term in nature,
and is very difficult to predict in terms of length or intensity. Though the exact causes of the
business cycle are difficult to discern, there are essentially two types of variables that
cause business cycle changes to occur.
➢ The first is an exogenous variable. - This is a variable that impacts the economic system,
though it is not an integral component of the system
➢ The other type of variable is the endogenous variable. - This is a variable that impacts
an economic system from within.

• Impact of the Business Cycle on the Corporation

What happens to a company when the business cycle changes to a new phase, either
upward or downward? For either an increase or decrease in the business cycle, call for
changes in a company’s operations that will certainly have some impact on profits, but
even more so on the level of working capital and fixed assets. The reverse problem arises
during an economic upswing, when reacting too slowly will result in a cash inflow from the
sale of all inventory, followed by the loss of additional profits because all of the inventory
has been sold, and there is none left to sell. Thus proper management of working capital
and fixed assets lies at the heart of management’s decisions regarding how to deal with
changes in the business cycle.
• Elements of Business Cycle Forecasting
The governments and schools do so as a public service, but the private groups do so for an
entirely different reason. These forecasts commonly cover a series of quarterly periods that,
due to the short timeframes involved, are much more difficult to predict with any degree
of reliability than the annual forecasts that were more common in the past few decades.
There are four primary methods used to arrive at forecasts:
□ Anticipation surveys. □ Time series models.
□ Econometric models. □ Cyclical indicators.
The exact forecasting method used depends on the person doing the forecasting, and is
largely influenced by judgment.

• Business Cycle Forecasting at the Corporate Level

The main factor a controller must decide on is balancing the time needed for
forecasting against the perceived value of the information. Also, if the accounting
function is understaffed, the needs of day-to-day activities will probably supersede any
demands for forecasting.
They are listed in ascending order of difficulty:
□ Report on published forecasts.
□ Subscribe to a forecasting service.
□ Develop an in-house forecasting model
Sales Standards
A standard has been defined as a scientifically developed measure of performance. It was
further noted that standards can be adapted to the measurement of sales performance in
somewhat the same way they have been used to judge performance in the factory. The
primary requirements in developing tools for the sales executive are threefold:
1. Sales standards are the result of careful investigation and analysis of past performance,
taking into consideration expected future conditions.
2. Sales standards must be fair and reasonable measures of performance.
3. Sales standards will need review and revision from time to time.

Purpose of Sales Standards

Sales managers are sometimes of the opinion that sales standards are not welcome. Some
sales executives feel that sales standards are an attempt to substitute impersonal statistics for
sales leadership. There is no substitute for dynamic and farsighted sales executives; there is no
intent that sales standards in any way replace personal guidance.

Nature of Sales Standards

The sales standards may be expressed in terms of effort, results, or the relation of effort to
result.

Revision of Sales Standards

Some standards of sales performance can be set with a high degree of exactness. Where a
salesperson is given some latitude in price setting, the gross profit percentage may vary with
competitive conditions beyond the salesperson’s control.
 Use of Sales Standards
As stated previously, the purposes of sales standards are to control sales operations, to
reward merit, and to stimulate sales effort. The standards in themselves are of limited
value, except as they are made effective in the accomplishment of such purposes. To
make the standards effective requires the following be done:
□The variations between actual and standard performance are promptly deter- mined.
□The causes of such variations are investigated and explained.
□The responsibility for the variations is definitely fixed.
□The individuals held responsible are given full opportunity to present their explanations.
□Prompt action is taken to correct any weaknesses revealed.
□The method of compensation provides a fair and accurate reward for performance.

Sales Quotas as Standards

The most widely used sales standard is the sales quota. As usually constituted, the sales quota is the
dollar amount of physical volume of sales assigned to a particular salesperson, department,
branch, territory, or other division as a measure of satisfactory performance. The quota may,
however, involve other considerations, such as gross profit, new customers, collections, or traveling
expense, thereby representing something of a composite or collective standard of performance.
The quota does not differ in its purpose and use from other sales standards as discussed earlier.
Where the former is the dominant factor, sales quotas constitute a valuable type of sales standard.
 Basis of Sales Quotas
Generally speaking, sales quotas are of value only to the extent that they are based on
known facts relative to sales possibilities. They must not be based on the greed of the
company or fanciful ideas of what might be done but on actual facts relating to past sales, sales in
allied industries, population, buying power, or territorial conditions. The sales representative should be
thoroughly informed about the method of arriving at the quota and convinced that the amount of
sales assigned is entirely justified according to the existing conditions. Then, and only then, will the
salesperson exert full effort in meeting the quota.
The quota should not be thought of primarily as a basis for contests. The salesperson should consider
the quota as representing a careful measurement of the task rather than a temporary target at which
to shoot.

Method of Expressing Quotas

Insofar as practicable, quotas should be broken down into their detailed elements. This helps to show
the sales representative where, how, and to whom the goods should be sold. To illustrate, a certain
company gives each of its sales representatives the following details relative to the sales quota:
□ The proportion of the quota assigned to each product line
□ The part of the quota that represents an expected increase in business from new customers
□ The part of the quota that represents an expected increase in business among old customers
□ The part of the quota to be secured in cities of various sizes
□ The part of the quota assigned to particular kinds of outlets or classes of customers
□ The part of the quota to be secured from special or exceptional sources
□ The distribution of the quota by months
Sales Reports
Content of Sales Reports
The matters that may be included in a sales report cover a broad front.
Such reports might contain:
□ Actual sales performance, with month- or year-to-date figures
□ Budgeted sales for both the period and year to date
□ Comparison of actual sales by firm with industry figures, including percentages
of total
□ Analysis of variances between budgeted and actual sales and reasons for
differences
□ Sale/cost relationships, such as cost per order received
□ Sales standards—comparison of actual and quota sales by salesperson
□ Unit sales price data
□ Gross profit data
Product Pricing: Policy and Procedure
Prices in a Competitive Economy
From the economic viewpoint, prices are the regulator of our economy in that they
determine the distribution of goods and services. From the accounting viewpoint, the one-
third computation is an essential aid to the judgment factor.

Prices and the Controller

The accountant’s contribution to the accounting control of sales is in most cases largely after the fact.
That is, comparisons of actual performance are made with budget, forecast, or standard; or sales data
are analyzed to reveal unfavorable trends and relationships. In the field of product pricing, however, the
controller may be able to exert “preventive” accounting control before the occurrence by bringing
facts to bear on the problem before unwise decisions are made. This activity is closely related to profit
planning as well as control. More specifically, the chief accounting official ordinarily can be of
assistance by performing the following functions:
□ Help establish a pricing policy that will be consistent with the corporate objectives
□ Provide unit cost analysis, in proper form, as one factor in price setting.
□ Project the effect on earnings of proposed price changes and alternatives.
□ To the extent necessary or practicable, gather pertinent information on competitive price
activity.
□ Analyze the historical data on prices and volumes to substantiate probable trends as they may
influence proposed price changes.
□ Determine for management, on a regular basis (such as the monthly operations report), the
influence on profit of changes in price, product mix, sales volume, and so on; in other words,
focus attention on the price problem where such action may bring about intelligent direction.
Cost Basis for Pricing
The controller is expected to be aware of the several costing methods and the limitations of each
and to select that concept most suited to the purpose at hand.
Although many costing methods or variations are in use, there are three basic approaches that
warrant discussion:
1. Total cost method
2. Marginal or direct cost method
3. Return-on-assets method

Elasticity of Demand
In exercising judgment on prices, elasticity of demand should be given proper weighting in any cost-
profit-volume calculations.
Too high a profit over a short term might invite competition or governmental regulation. Then the unit
cost and total cost at the corresponding production level are calculated. That volume at which the
greatest total profit is secured can then be determined.

From the cost viewpoint, at least four disadvantages exist in using such a method exclusively:
1. It fails to distinguish between out-of-pocket costs and total costs.
2. It does not recognize the inability of all products to return the same rate of profit.
3. The method does not recognize the optimum profit potential.
4. This method of calculating tends to encourage a constant overhead application percent to the
exclusion of volume factor likely to be applicable.
Marginal Cost Method
The marginal cost approach to prices gives recognition to the incremental or marginal
costs of the product. These are costs directly associated with the product that would not
be incurred if the product were not manufactured or sold. Any selling price received
above this floor represents a contribution to fixed expenses and/or profit.
It can be appreciated that marginal and direct cost data—before allocated continuing
costs—are of value in any one of several situations:
□ Where additional sales may be made at reduced prices, over and above direct
costs, to another class of customer, namely, private brand business, or under
another trade name and so forth
□ Where idle plant capacity can be utilized only at reduced prices and in other
than regular sales outlets
□ Under circumstances where these added sales at reduced prices do not create
problems in the regular marketplace

The use of marginal costs is for short-term decisions only. The great danger is the tendency
to secure a larger and larger volume of sales on an incremental basis, with an ultimate
deteriorating effect in the market and a large share of business that does not return its
full and proper share of all costs. Furthermore, under such conditions there is no return on
assets employed from the products priced at not more than total costs.
Return-on-Assets-Employed Method
From the profit viewpoint, the most desirable costing method is that which maximizes the
return on total assets employed. Growth generally takes place only when the product
yields a reasonable return on the funds devoted to it. If the business objective is to
maximize return on capital, then, as a starting point at least, the price of each product
required to achieve the desired rate of return should be known.
This method of determining markup over total costs for the desired percent return on
assets rather than markup for a percent return on costs (or percent of net sales)
has considerable merit in the opinion of the authors. In view of the variables, a formula
may be employed to calculate the sales price required to produce a planned return on
assets employed:

Cost + (Desired % return × fixed assets)

Annual sales volume in units
Unit price = . Σ. Σ
Desired % Variable assets expressed
1−
return as % of sales volume
 In the formula:

Cost represents total cost of manufacturing, selling, administrative, research, etc.

% return represents that rate desired on assets employed (before income taxes).
The fixed assets represent plant and equipment, although some of the current assets
might be placed in this category.
The variable assets represent the current assets that are a function of volume and
prices.
Applying some assumptions, a unit price on product A may be calculated as:

$2,660,000 + (.20 × $300,000)

100,000
=
1 − (.20 × .30)
$2,720,000/100,000 units
=
1 − .06
. Σ
27.20
= = $28.936
.94

The proof is computed in this manner:

Income and costs

Sales (100,000 units at $28.936) $2,893,600
Costs 2,660,000
Income b efore taxes $ 233,600
Assets employed
Variable (30% of $2,893,600) $ 868,080
Fixed 300,000
Total assets employed $1,168,080
20 % Return on assets employed of $1,168,080 (fractions ignored) $ 233,600

The foregoing is intended to show the method of determining unit sales prices to
provide a target or planned return on investment. Although applied to a single product,
the percentages used were those of the product class or group of which product A is
one segment.
 □
Net sales and aggregate costs by element may be determined in this manner:

Conversion Costs for Pricing

Required operating profit (20% of $24,000,000) $ 4,800,000
Add: Continuing or period expenses 6,000,000

Purposes
Required margin over direct costs 10,800,000
Required sales [$10,800,000 + 30% (P/V ratio)] 36,000,000

Still another economic concept useful in

10,800,000
Deduct: Margin
Direct costs 25,200,000
pricing is termed the conversion cost Segregated on a 4-to-3 ratio as:
Direct material $14,400,000
theory of value. In essence, this view holds Conversion 10,800,000 $25,200,000

that profits are, or should be, earned
commensurate with the effort and risk
inherent in converting raw materials into
finished products. Differences in types of
Inasmuch as the material turnover is two times per year, the investment is
$7,200,000 ($14,400,000 2).÷ Twenty percent of this figure is $1,440,000. Conse- quently,
the additive factor is 10 percent ($1,440,000 $14,400,000),
÷ and the portion of sales
revenue needed to provide a 20 percent return is $15,840,000 ($14,400,000
+ $1,440,000).
The additive factor on conversion costs may be determined by the difference

costs may therefore need to be

method as:

recognized. A combined use of the Total required income (sales)

Less: Direct material and related profit additive
$36,000,000
15,840,000
return-on-assets concept and direct costs Balance attributable to conversion factor $20,160,000

may be illustrative. Assume the following Thus, the conversion markup is 1.867 ($20,160,000 ÷ $10,800,000).
is a typical pricing and profit-planning If the direct costs of product R162 in the line are known, the target or “ideal”
selling price is then determined in this fashion:
problem:
Unit Direct Cost Factor Unit Selling Price

Direct material $16.10 1.100 $17.71

Conversion 20.30 2.867 58.20
Total $36.40 $75.91

Such proposed prices are only a starting point—they must be considered in

relationship to competitive prices.
 Planning and Control of
Marketing Expenses
Definition
In a broad sense, marketing expenses may be defined as the costs relative to all activities
from the time goods are produced/manufactured or from the time of purchase in a
nonmanufacturing company until the products reach the customer—the cost of marketing
or selling. This would include the applicable portion of all costs, including general,
administrative, and financial expenses. For our purposes here, however, the discussion is
limited to those expenses, exclusive of general, administrative, and financial expenses, that
are normally under the control of the marketing or sales executive. They may include, but
are not limited to, the following general classifications:
• Direct selling expense.
• Advertising and sales promotion expense.
• Transportation expense.
• Warehousing and storage expense.
• Market research expense.
• General distribution expense.

Depending on the type of product, it is likely that a company should expend funds on
marketing activities in these three areas, and in the order presented:
1. General awareness.
2. Customer-initiated inquiry.
3. Relationship improvement.
Factors Increasing the Difficulty of Cost Control

Any controller who tackles the matter of marketing expenses control will find that the
problems usually are much more complex than those relating to production costs. First,
the psychological factors require more consideration. In selling, the attitude of the
buyer as well as the salesperson is variable, and competitive reaction cannot be
overlooked. Also, the constant changes or switches in method of sale or channel of
distribution are factors that make it harder to secure basic information. Finally, the
nature of the activities requires different types of costs than might be needed in
production. Such conditions create problems that may test the ingenuity of the
controller.
Marketing Expense Analysis
Marketing costs are analyzed for three primary purposes:
1. Cost determination
2. Cost control
3. Planning and direction of the selling and distribution effort

Types of Analyses
There are three basic methods of analyzing marketing expenses:
1. By nature of the expense or object of expenditure
2. By functions or functional operations performed
3. By the manner of application of the distribution effort

Other methods of analyzing marketing expenses:

1. By Territory
• Reorganization of territories to permit effort more nearly in line with potentials
• Rearrangement of territorial boundaries to reduce selling expense, secure better
coverage, and so forth
• Shifting of salespersons
• Increased emphasis on neglected lines or customers in territory
• Change in method of sale or channel of distribution (shift from salesperson to agent, etc.)
• Changes in physical facilities (warehouses, etc.) in territory
• Elimination of unprofitable territories (potentials of area and out-of-pocket costs vs.
allocated costs considered)
• Change in advertising policy or expenditure in territory
2. By product
• If there are differences in the time or amount of sales effort required.
• If there are differences in the method of sale.
• If there are differences in the size of the order.
• If there are differences in channels of distribution.

3. By Customer
Classifications that have proved useful are:
• Amount of annual purchases • Size of orders
• Location • Frequency of sales calls
• Type of agent • Credit rating of customers
But it will furnish facts for executive discussion regarding:
• Discontinuance of certain customer groups
• Price adjustments
• The need for higher margin for certain groups
• Change in method of sale

Other Analyses
There are other analyses that may prove useful in a particular concern, for example:
• By channel of distribution.
• By method of sale.
Planning Marketing Expenses
Just as sales must be planned in attempting to reach the annual profit objective,
so also must marketing expenses. It is usually the task of the controller or the
budget director to develop the procedures for estimating the expense levels,
and to provide the proper format and supporting data so that the chief
marketing executive can furnish the financial data for consolidating the annual
business plan.

Depending on industry practice and company experience, budgetary control of

distribution costs may be achieved through one of these types of budgets:
□ Administrative
□ Project
□ Volume—variable
□ Competitive service
 The Illustrative Company, Inc.
Advertising and Sales Promotion Budget
(Dollars in Thousands)
(Increase)
Special Comments on Advertising and Current Decrease
Sales Promotion Expense Year Plan Year over
Project Requested Current
We can define advertising as any paid form of Category Budget Budget Year Comments
nonpersonal presentation and pro- motion of Broadcast media

ideas, goods, and services by an identified Radio—local

Television
$ 500 $ 525 $ (25) Price increase

sponsor. Regional 1,300 1,400 (100) Price increase ($65,000)

Expanded coverage
Further, the purpose of advertising will vary in differing Local spots 2,500 2,625 (125) 5% price increase
Total 3,800 4,025 (225)
circumstances. While the general purpose is to support Total broadcast media 4,300 4,550 (250)
the broad marketing objectives, more specific goals Print media
Local newspapers 400 420 (20) Price increase
may include: Business publications 700 700 —

□ Educate consumers in the use of the product or General public magazines 1,200 1,100 100 Elimination of Oregon
Subtotal 2,300 2,220 80
service. Catalogs 900 900 —

□ Reduce the cost of other selling effort.

Newspaper stuffers 350 300 50
Direct mail 1,900 2,000 (100)
□ Increase sales. Total print media 5,450 5,420 30
Total media 9,750 9,970 (220)
□ Establish or maintain trademarks or brand names. Advertising administration
□ Develop new markets. Salaries and wages 400 420 (20) General wage increase
of 5%
□ Meet or outdo competition. Fringe benefits 160 168 (8)
□ Maintain prices. Travel
Communications
140
100
120
90
20
10
No foreign trips

□ Introduce new products or services. All other 90 90 —

□ Create favorable public opinion. Total administration 890 888 2

Grand total $10,640 $10,858 $(218)
□ Avoid unfavorable legislation. Percentage of sales 8.0% 7.4%
Two basic ways are currently in use of establishing an advertising and sales promotion budget:
the lump-sum appropriation method and estimating the amount required to attain certain objectives. The
simple lump-sum appropriation method consists of authorizing the expenditure for advertising and sales
promotions related to some factor. Under this plan the total amount to be spent could be based on:
□ A percentage of planned or budgeted sales
□ A percentage of the prior-year sales or perhaps of an average of several past years
□ A fixed amount per unit of product expected to be sold (the units are obtained from the sales plan)
□ An arbitrary percentage increase over the prior year’s expenditure
□ A percent of gross profit on the product for the prior year or the planning year
□ A percentage of net income of the prior year or the planning year
The advantage of the lump-sum appropriation method is sheer simplicity. Basically it seems to lack any
scientific basis, although there may be a perceived long-term relationship between advertising
expenditures and level of sales.

The estimated “cost of attaining the objective” procedure seems a more logical process: Objectives are
set; the detailed steps to reach the objective are decided upon; the relevant costs for each such
program are estimated and are summarized to arrive at the total cost for the planning year. This
estimating process may be performed by the advertising department, perhaps assisted by an outside
advertising agency, or sometimes it is done by the agency itself. In some cases the marginal or gross
profit from the additional units estimated to be sold can be compared with the advertising expense to
determine if the project seems to make financial sense. This can be done on an incremental advertising
expense and quantity basis to ascertain at which point, if any, the incremental unit advertising cost
exceeds the incremental marginal profit of all direct expenses.
Marketing Expense Standards
Standards and Control : The very foundation of marketing cost control lies in the correlation
of sales effort with the potential and the use of analysis to avoid misdirection.

Types of Marketing Expense Standards

Marketing expense standards may be either (1) of a very general nature, and applicable to
distribution functions as a whole, or by major divisions, or (2) units that measure individual
performance. Illustrative of the former are:
• Selling cost as a percentage of net sales • Cost per dollar of gross profit
• Cost per unit sold • Cost per sales transaction
• Cost per order received •Cost per customer account

Standards such as these are useful indicators of trends for the entire distribution effort.
Furthermore, such standards can be applied to individual products, territories, branches, or
departments.
Standards might be set for direct labor as:
□ Cost per item handled □ Cost per pound handled
□ Cost per shipment □ Cost per order filled
Similar standards might be set for shipping supplies or delivery and truck expense. In the
direct sales field, standards might be set for a salesperson’s automobile expense in terms of
the following:
 Cost per mile traveled  Cost per day
 Cost per month
Planning and
Controlling of
Manufacturing
Cost

Mary Gene R Rana

 Manufacturing Cost
 The sum of costs of all resources consumed in the process of making a
product.
 Classified into three categories:
✓ direct materials cost - the raw materials that become a part of the
finished product.
✓ direct labor cost - cost of the wages of the individuals who are
physically involved in converting raw materials into a finished
product.
✓ manufacturing overhead - manufacturing cost that is neither direct
materials cost or direct labor cost.
▪ Indirect labor cost, indirect materials cost and other indirect
manufacturing cost
GENERAL ASPECTS OF
MANUFACTURING
RESPONSIBILITIES OF THE MANUFACTURING
EXECUTIVE
✓Physical Facilities
✓Product and Production Planning
✓Manufacturing Process
Planning and Controlling of
Manufacturing Cost

Direct Material and Direct Labor

DIRECT MATERIAL COSTS: PLANNING AND
CONTROL
✓ material planning and control is simply the providing of the
required quantity and quality of material at the required time
and place in the manufacturing process. By implication, the
material secured must not be excessive in amount, and it must
be fully accounted for and used as intended.
✓ The extent of material planning and control is broad and
should cover many phases or areas, such as plans and
specifications; purchasing; receiving and handling; inventories;
usage; and scrap, waste, and salvage.
 BENEFITS FROM PROPER MATERIAL PLANNING
AND CONTROL
 Proper planning and control of materials with the related adequate accounting has the
following ten advantages:
✓ Reduces inefficient use or waste of materials
✓ Reduces or prevents production delays by reason of lack of materials
✓ Reduces the risk from theft or fraud
✓ Reduces the investment in inventories
✓ May reduce the required investment in storage facilities
✓ Provides more accurate interim financial statements
✓ Assists buyers through a better coordinated buying program
✓ Provides a basis for proper product pricing
✓ Provides more accurate inventory values
✓ Reduces the cost of insurance for inventory
 PLANNING FOR DIRECT MATERIAL
The planning aspect of direct material relates to four
phases, budgets, or plans:

Material usage
budget
Involves determining the
quantities and related cost of
the raw materials and
purchased parts needed to
meet the production budget on
a time-phased basis.
 PLANNING FOR DIRECT MATERIAL

Material purchases
budget
When the material usage
budget is known, the purchases
budget can be determined,
taking into account the
required inventory levels.
 PLANNING FOR DIRECT MATERIAL

Finished Quantities of finished product to be

production budget manufactured in the planning periods

Inventories The three preceding budgets, plus the cost-of-

goods-sold budget, determine the inventory
budgets budgets for the planning period.
DIRECT MATERIAL COST CONTROL

Setting material quantity standards

Revision of material quantity standards
Using quantity standards for cost control
Limited usefulness of material price standards
Setting material price standards
Other applications of material control
 LABOR COSTS: PLANNING AND CONTROL

 PLANNING OF LABOR COSTS

✓ planning or estimating the
required manpower and costs
associated with direct
manufacturing departments
for the annual plan
✓ The process, which is essentially
the responsibility of the
manufacturing executive,
 LABOR COSTS: PLANNING AND CONTROL

 PLANNING OF LABOR COSTS

✓ planning or estimating the
required manpower and costs
associated with direct
manufacturing departments
for the annual plan
✓ The process, which is essentially
the responsibility of the
manufacturing executive,
 LABOR COSTS: PLANNING AND CONTROL
 PLANNING OF LABOR COSTS
✓ This process has several purposes, such as:
❖Ascertaining by department, by skill, and by time period the number
and type of workers needed to carry out the production program for
the planning horizon
❖Determining the labor cost for the production program
❖Determining the estimated cost (payroll) requirements of the time-
phased manufacturing labor budget for the planning period
❖Determining the unit labor content of each product so that the
inventory values, cost of manufacturer, and cost of sales can be
calculated for use in the statements of planned income and expense,
planned financial condition, and planned cash flows
❖Seeing that the planned funds are available to meet the payroll
DIRECT LABOR COST CONTROL

Setting labor performance standards

Revision of labor performance standards
Operating under performance standards
Use of labor rate standards
Control through preplanning
Labor accounting and statutory requirements
Wage incentive plans: relationship to cost standards
Planning and Controlling of
Manufacturing Cost

Manufacturing Expenses
 PLANNING AND CONTROL
OF MANUFACTURING COSTS: MANUFACTURING EXPENSES

 NATURE OF MANUFACTURING
EXPENSES
✓ includes a wide variety of
expenses, such as
depreciation, property taxes,
insurance, fringe benefit costs,
indirect labor, supplies, power
and other utilities, clerical costs,
maintenance and repairs, and
other costs that cannot be
directly identified to a product,
process, or job.
RESPONSIBILITY FOR PLANNING AND
CONTROL OF MANUFACTURING EXPENSES
 Responsibility for the planning and control of manufacturing expenses
is clearly that of the manufacturing or production executive. With
that, they should heed these common sense suggestions to make the
reports more useful to the manufacturing executive:
✓ The budget (or other standard) should be based on technical
data that are sound from a manufacturing viewpoint.
✓ The manufacturing department supervisors, who will do the actual
planning and control of expenses, must be given the opportunity
to fully understand the system, including the manner in which the
budget expense structure is developed, and to generally concur
in the fairness of the system.
RESPONSIBILITY FOR PLANNING AND
CONTROL OF MANUFACTURING EXPENSES
✓ The account classifications must be practical, the cost
departments should follow the manufacturing organization
structure (responsibility accounting and reporting), and the
allocation methods must permit the proper valuation of
inventories (usually under general accepted accounting
principles), as well as proper control of expense.

✓ The manufacturing costs must be allocated as accurately as

possible, so the manufacturing executive can determine the
expense of various products and processes. This topic is covered
in more detail later in this chapter, under activity-based costing.
 BUDGETARY PLANNING AND CONTROL OF
MANUFACTURING EXPENSES
 Three types of budgets might be applied in the manufacturing expense
area:
✓ A fixed- or administrative-type budget

-as the name

implies, more or
less constant in the
amount of
budgeted or
allowed expenses
for each month.
 BUDGETARY PLANNING AND CONTROL OF
MANUFACTURING EXPENSES
✓ A flexible budget, wherein certain expenses should vary with volume
handled

- The flexible or
variable budget
recognizes that some
expense levels should
change as the volume
of production varies,
and it is the type
suggested for proper
planning and control of
manufacturing
expenses in many
instances.
 BUDGETARY PLANNING AND CONTROL OF
MANUFACTURING EXPENSES
✓ A step-type budget

- Some companies desire

budgets that more or less
reflect what expenses should
be at particular levels, but
wish to avoid a monthly
calculation of the allowable
budget based on the fixed
amount and variable unit rate
as in the flexible budget.
Rather, the management
prefers to establish a budget
for each level of activity within
a range of possible activity
levels.
 INCENTIVES TO REDUCE COSTS
 In the control of manufacturing
expenses, as in the case of direct
labor and material, a most important
factor is the first-line supervision.
 Incentive takes the form of a
percentage of the savings or is based
on achieving a performance
realization above some
predetermined norm. If a supervisor
participates in the savings from being
under the budget it is a powerful force
in obtaining maximum efficiency.
Planning and Control of Research and
Development Expenses
Toni Rose O. Malabana
Presentor
 What is RESEARCH?

→ relates to those activities in a business

enterprise that are directed to a search for new
facts, or new applications of accepted facts, or
possibly new interpretations of available
information, primarily as related to
the physical sciences.
 What is DEVELOPMENT?

→ those activities that attempt to place on a

commercial basis that knowledge gained from
RESEARCH.
R&D Categories

Sales service Factory service Product improvement

New product research Fundamental research

 Elements of R&D Cost
Materials, equipment
and special facilities Indirect cost
Intangible purchases
from others

Personnel Contract services

 Role of Financial Executive in R&D
▪ Provide the necessary accounting accumulation and reporting of the cost and expenses, and
assets and liabilities
▪ Establish and maintain proper internal controls
▪ Establish and maintain and adequate budgetary planning and control system
▪ Assist in developing guidelines for the total amount to be spent on R&D activities
▪ Provide data to guide in establishing budgets and cost/benefit and relative risk comparison, for
R&D projects
▪ Assist the R&D managers in developing the planning budget
▪ Assist in preparing the annual capital budget
▪ Provide acceptable, practical expense control reports
 How much should the
company spend on R&D
this year?
 Constraints to be Considered

▪ Funds available
▪ Availability of personnel
▪ Competitive action
▪ Amount required to make the effort effective
▪ Strategic plans
▪ General economic and company outlook
 Determinants of R&D Spending

▪ Amount spent in the past and or current year

▪ Percentage of planned net sales
▪ Amount spent per employee
▪ Percentage of planned operating profit
▪ Percentage of planned net income
▪ Fixed amount per product sold
▪ Share of estimated flow from operations
 Factors to consider in the decision of project selection

▪ Availability of technically-qualified personnel

▪ Urgency of the project from a marketing and
manufacturing viewpoint
▪ Time required for the project
▪ Prior research already done by others
▪ Prospect of economic gain as the predominant influence
Quantitative Techniques
 Evaluating R&D Expenditures
Assume these five conditions:
1. Management has set a 10 percent return on gross assets, net after taxes, as the minimum
acceptable rate.
2. In one or two years after development is complete, the estimated sales of the newly
developed Product X ought to attain a stable level so that aggregate sales should total
PHP 100 million.
3. The typical gross margin in the business is 30%, and Product T should be no exception.
4. It is expected that, when research and development is complete, the required asset
investment will be:
Working capital: PHP 11,000,000
Plant and equipment : PHP 5,000,000
Total: PHP 16,000,000
5. The expected income tax rate—federal, state, and local (netted)—is 40 percent.
Evaluating R&D Expenditures

With this sales and gross margin expectation

and a minimum 10 percent return on assets, how
much can the company spend on research and
development on Product X?
 Evaluating R&D Expenditures

NET INCOME = Gross margin – R&D – [(Gross margin – R&D x 40%)]

ROA = Gross margin – R&D – [(Gross margin – R&D) x 40%]

Total assets

= (PHP100,000,000 x 30%) – R&D – [(PHP100,000,00 x 30% - R&D) x 40%]

PHP16, 000,000

Given:
1) 10 percent return on gross assets
2) Sales of PHP 100 million
3) Typical gross margin is 30%
4) Asset investment is PHP 16 million
5) Income tax rate 40%
 Target Costing

Sakurai (1998) defines target costing as a ‘cost management

tool for reducing the overall cost of a product over its entire
life cycle with the help of production, engineering, R&D,
marketing, and accounting departments’.
 Target Costing

Expected Commercial Value = ([(PNPV x PCS) - CC] x [PTS]) – PDC

wherein;
PNPV = Project Net Present Value
PCS = probability of commercial success
CC = Commercialization cost
PTS = probability of technical success
PDC = product development cost
“Are the R&D
expenditures
worthwhile?”

“Is the company

research
effective?”
 Measurements of R&D Effectiveness
▪ R&D % of Sales
▪ Revenue from new products over the X years
▪ No. of patents filed or granted
▪ No. of new products commercialized
▪ Total R&D headcount

Retrieved from: https://chemical-materials.elsevier.com/chemical-rd/measure-effectiveness-rd-based-innovation/

Toni Rose O. Malabana
Presentor
 Service Sector

A service company is a business that generates income by

providing services instead of selling physical products.
 Planning System (Annual Budgets)

Sales Budget
-used to calculate the the
amount of money the
company expects to
receive from the sales of
services
 Planning System (Annual Budgets)

Sales Budget

Internal Considerations:
1. Company Growth objectives, including expansion to new customers and services
2. Available resources – human, physical and financial
3. Planned advertising, promotion, and public relations campaigns
4. Pricing actions
 Planning System (Annual Budgets)

Sales Budget

External Considerations:
1. Competition (including price)
2. Growth potential/demographics
3. Technological changes
4. General economic trends
 Planning System (Annual Budgets)

Direct Labor Budget

-used to calculate the the
number of labor hours that
will be needed to produce
the units itemized in sales
budget
 Strategic Planning

- Strategic planning is a technique that will identify growth

opportunities, human resources needs, and resources
allocation requirement.
 Future activities should be projected and analyzed. The strengths and weakness
of the firm can be reviewed and appropriated goals and directions and formulated.
Some of the considerations that a service company should asses are:
• Image of the firm as perceived by clients and others
• Quality of the work, product, and location and accessibility to customers

In addition, the following factors should be addressed in developing the strategic plan:
• Who and where are the potential new clients/customers?
• What will be the source of new hires as they are needed?
• What governmental actions will impact the firm?
• What technological improvements can be expected?
 MANAGERIAL
ACCOUNTING

▪ Planning and Control of General and

Administrative Expenses
▪ Planning and Control in Service Company

By: Catherine S. Tana

 FIVE IMPORTANT INCOME STATEMENT
EXPENSE HEADINGS

1. Expense of Cost of Good Sold (COGS)

2. Operating Expenses – Selling
3. Operating expenses – General &
Administrative (G & A)
4. Financial Expenses
5. Extraordinary Expenses
GENERAL & ADMINISTRATIVE EXPENSES
• Executive salaries
• Wages and salaries for employees who are not
working in manufacturing or selling.
• Research and Development
• Travel and training expenses
• IT Support
• Depreciation for Property, Plant & Equipment
assets, and other assets not solely dedicated
to manufacturing of sales.
PLANNING AND CONTROL OF GENERAL AND
ADMINISTRATIVE EXPENSES
 COMPONENTS OF GENERAL AND ADMINISTRATIVE
EXPENSE
Set of Departments
• The office of the chairman of the board
• The office of the president
• The accounting department
• The management information system department
• The treasurer’s department
• The internal audit department
• The legal department
Common Set of Expenses
• Salaries and wages
• Fringe benefits
• Travel and entertainment
• Telephones
• Repair and maintenance
• Rent
• Dues and subscriptions
• Utilities
• Depreciation
• Insurance
• Allocated expenses
• Other Expenses
Additional Set of Expenses that cannot be allocated to other departments
(or at least not without the use of a very vague basis of allocation), and
so must be grouped into the G&A heading:
• Director fees and expenses
• Outside legal fees
• Audit fees
• Corporate expenses (registration fees)
• Charitable contributions
• Consultant fees
• Gains or losses on the sale of assets
• Cash discounts
• Provision for doubtful accounts
• Interest expense
• Amortization of bond discount
 REQUIRED REVENUES TO COVER THE COST OF A
PERSON

Salary Level Gross Margin Revenue Required

$50,000 90% $55,556

$50,000 80% $62,500

$50,000 70% $71,429

$50,000 60% $83,333

$50,000 50% $100,000

$50,000 40% $125,000

$50,000 30% $166,666

$50,000 20% $250,000

$50,000 10% $500,000

Examples of good internal audit targets in the G&A
area include:

• Compare process efficiencies to those of best-practice

companies and recommend changes based on this review.
• Confirm the results of consulting engagements, and
construct cost-benefit analyses for them to determine
which consultants are creating the largest payoff.
• Review the bad debt expense to see if there is an unusual
number of write-offs, and recommend changes to the
credit granting policy based on this review.
• Verify that all dues and subscriptions have been properly
approved.
• Verify that all paychecks cut are meant for current
employees.
• Verify that assets are categorized in the correct
depreciation pools.
• Verify that cellular phone usage is for strictly company
business.
• Verify that charitable contributions are approved in
advance.
• Verify that insurance expenses are competitive with
market rates.
• Verify that legal expenses are at market rates.
• Verify that office equipment is not incurring excessive
repair costs.
• Verify that phone expenses are in line with market rates.
• Verify that scheduled rent changes have been paid.
• Verify that there are proper deductions from paychecks
for benefits.
• Verify that there is approved backup for current employee
pay rates.
• Verify that travel and entertainment expenses are
approved.
• Verify that travel and entertainment expenses are in
accordance with company policy.
CONTROL METHODS
1. To assign a number of control points to a company’s
internal audit group for periodic reviews.
2. To hand out a comparison of actual expenses to the
budget after each month has been closed.
3. To divide up all G & A costs by responsibility area.
4. To allocate G & A costs
a) Allocated based on the amount of resources
consumed by the cost center that is receiving the
service.
b) Allocated based on the relative amount caused by
the various cost centers.
c) Allocated based on the overall activity of a cost
center.
5. To create standards for each activity performed.
 CONTROL METHODS
1. Allocation Method bases for G & A Cost
2. Applying Cost Standards to Credit and Collection
Functions
1. Allocation Bases for G & A Costs

Steps To Create Standards

• Observe work tasks

• Select tasks to be standardized

• Determine the unit of work

• Determine the best way to set each standard

• Test each standard

• Apply the standard

• Audit the standard

2. Applying Cost Standards to Credit and
Collections Functions
1. Reducing G & A Expenses
Variety of Techniques to Reduce Costs in Specific G
& A Areas:

• Audit expense
• Bad debt expense
• Charitable contributions
• Equipment lease expense
• Forms expense
• Interest expense
• Officer salaries
• Reproduction expense
• Storage space
• Telephone expense
STEPS ON SPECIFIC EFFICIENCY IMPROVEMENT

• Clean up the area

• Eliminate duplicate documents

• Eliminate duplicate tasks

• Eliminate multiple approvals

• Use automation

• Provide training

• Rearrange the workspace

• Staff for low volume

• Benchmark G & A

• Cross-train the staff

2. Budgeting G & A Expenses

1. The controller or budget director makes available to

each functional executive and/or department head, in
either worksheet form or computer accessible data:
(a) Actual year-to-date expenses and head count

(b) Assumptions to be used for budgetary purposes:

percent of pay raise, fringe benefit cost percent,
inflation rate, generally acceptable rate of expense
increase, etc.

(c) Any relevant information on the business level,

economic conditions, etc.

(d) Instructions on preparing the planning budget

Cont…Budgeting G & A Expenses

2. The department head completes the budget proposal and

sends it to his supervisor for approval, who then forwards
it to the budget director.

3. The individual department budget requests are reviewed

by the budget director, checked for reasonableness and
completeness, and, when acceptable, summarized for the
central office by responsibility. When the aggregate G&A
budget is accepted, it becomes part of the annual
business plan.

4. Monthly, the department expenses—actual and budget—

are compared by the department head, who takes
corrective action where appropriate. This report shows
any significant over- or underrun.
 Planning and Control of:
➢ Cash
➢ Short-term Investments
➢ Receivables
Managerial Accounting

Prepared By:
Nikka A. Villanueva
CASH

▪ Any item that is acceptable by bank or other financial institution for deposit at face value.

▪ It is the most liquid asset of an enterprise; thus, it is usually the first presented in the
currents assets section of the balance sheet.

▪ It must be unrestricted and immediately available for use in the current operations.

CASH ITEMS

▪ Cash on Hand - includes undeposited collections such as bills and coins, manager’s
check, bank drafts and money order.

▪ Cash in Bank - includes demand deposit or checking account and savings deposit which
are unrestricted as to withdrawal.

▪ Cash Fund – working funds segregated for current purposes such as petty cash fund,
change fund, payroll fund, dividend fund, tax fund and interest fund.

CASH EQUIVALENTS

Short-term highly liquid financial instruments that are readily convertible to cash and are subject to
an insignificant risk of changes in value due to fluctuation of interest rates.

Only highly liquid investments that are acquired three months before maturity can qualify as cash
equivalents.

Example: 3-month Time Deposit, 3-month BSP Treasury Bill, 3-month Money Market Instruments.

CONTROLLER’S RESPONSIBILITIES

▪ Develop and review cash forecast

▪ Review and enforce internal controls

▪ Reconcile bank accounts

▪ Prepare and review cash reports

▪ Ensure proper safeguards to protect company asset

CASH CONTROL PROCEDURES

(Primacy of segregation of duties)

▪ Ensures employee take vacation at least annually

▪ Assign another employee to perform job duties during absences and periodically

▪ Periodically and without warning reassign job duties

(against misappropriation of cash disbursements)

▪ All disbursements must be by check

▪ All documents must be pre-numbered

▪ Checks over P200,000.00 should require two signatures

▪ Disbursements have proper documentation

▪ Vouchers should be marked paid to prevent duplicate use

▪ Petty cash vouchers in ink or typewritten

▪ Bank reconciliation (daily/monthly)

▪ Separate account maintained for payroll

▪ Restricted access to checks and signatures

CASH BUDGET

▪ Produced to determine the cash requirements of an organization

▪ Lists the expected cash receipts, disbursements, and short-term financing needs.

▪ Draws information from the sales forecast, budget and the capital budget

▪ The cash budget will be used to plan growth and identify seasonal trends

There are two methods used to develop cash budgets:

▪ Direct estimate of cash receipts and disbursements - detailed forecast of each cost
element or function involving cash.

▪ Adjusted net income method - begins with net income, adjusts for all noncash
transactions.
SHORT-TERM INVESTMENTS

Are part of the account in the current assets section of a company’s balance sheet. This account
contains any investments that a company has made that is expected to be converted into cash
within one year.
TYPES OF SHORT-TERM INVESTMENT

TIME DEPOSIT - is an interest-bearing bank deposit that has a specified date of maturity. It is a
money deposit at a bank that cannot be withdrawn for specific term or period of time. When the
term is over it can be withdrawn or it can be held for another term.

MONEY MARKET INSTRUMENTS - is a mechanism that deals with the lending of short-term
funds (less than one year). A segment of the financial market in which financial instrument with
high liquidity and very short maturities are traded.

TYPES OF MONEY MARKET

▪ Philippine Treasury Bill

▪ Negotiable Certificates of Deposit

▪ Banker’s acceptances

▪ Federal agency issues

▪ Commercial paper

▪ Short-term exempts

SAVINGS ACCOUNT - are low risk deposit accounts held by a bank that provide the owner a
small rate of interest.

CERTIFICATE OF DEPOSITS - are promissory notes from banks that have specific maturity
dates and interest rates.

TREASURY BILLS - are owed to the purchaser by the Philippine government. These mature in
less than 1 year. When it matures, the T-Bill includes the principal and interest. The longer the
investment, the higher the interest rate.
RECEIVABLES

▪ Third most liquid asset

▪ Monetary claims against others

▪ Acquired mainly by:

- Selling goods and services (accounts receivable)

- Lending money (notes receivable)

ACCOUNT RECEIVABLES

▪ Amounts collectible from customers

▪ Balance in general ledger

- Control account: summarizes total amount due from all customers

▪ Subsidiary ledger

- Separate account for each customer

NOTES RECEIVABLES

▪ More formal than accounts receivable

▪ Written promise to pay a sum at the maturity date

- Plus interest

▪ Also called promissory notes

INTEREST

▪ Interest rates are usually expressed as an annual percent

▪ For time periods less than a year, a fraction is used

- Months/12

▪ Often interest is computed based on days

- Denominator would be days/365

INTERNAL CONTROLS OVER RECEIVABLES

▪ Separate cash-handling from cash-accounting duties

▪ Cash-handling

- One person receives customer checks and makes deposits

▪ Cash-accounting

- Another person makes entries to customer accounts

Inventory Planning & Control
 What is inventory planning?

 The process of determining the optimal quality and timing for purpose
of aligning it with sales and production capacity

 It has direct impact in a company’s cash flow and profit margins.

Especially for smaller businesses, that rely upon quick turnover of
goods or material.
 Objectives of inventory planning

 Customer satisfaction
 Forecasting needs
 Controlling costs
 Successful storage
 Advantages of inventory planning

 You know your stock level

 You can conduct stock rotation
 You can optimize and reduce stock of items that don’t move that quickly
 You can quickly identify which item is quickly bought and the least. So
you can add and remove stocks
 Disadvantages of inventory planning

 It doesn’t stop staff stealing stock

 It can waste a lot of effort if not implemented
 It can be very expensive and the return in investment(roi) can take a
long time
 It requires a lot of staff training and you may loose some staff along the
way
 Material Requirements Planning (MRP)

 It is a production planning and inventory control system used to

manage manufacturing processes
 Most MRP Systems are software-based
 What can MRP Do?

 Reduce inventory levels

 Reduce component shortage
 Improve shipping performance
 Improve productivity,reduction in excessive inventory
 Simplified and accurate scheduling
 Reduce purchase cost
 Improve production schedule
 Less scrap and rework/less Overtime
 3 steps of MPR

 Identifying the requirements

 Running mrp-creating the suggestion
 Framing the suggestion
 Step 1: Identify the requirements

 Quantity on hand
 Quantity on open purchase order
 Quantity in/or planned for manufacturing
 Quantity committed to existing orders
 Step 2: Running MRP(creating the suggestions)

 Critical items
 Expedite items
 Delay items
 Step 3: Framing the suggestions

 Manufacturing Orders
 Purchasing Orders
 Various reports
 What is master production schedule?

 It is also called MPS. A plan that a company has developed for

production, inventories, staffing,etc. it sets the quantity of each item to
be completed in each week of a short planning horizon. It is the master
of all schedules. A plan for future production of end items.
 Inventory Control

 It is the supervision of supply, storage and accessibility of items in order

to ensure an adequate supply without excessive over supply.
 Objectives:

 Protection against fluctuations in demand

 Better use of men , materials, machines.
 Protection against fluctuations in output
 Control of stock volume
 Control of stock distribution
 Major activities of inventory control

 Planning the inventories

 Procurement of inventories
 Receiving and inspecting the inventories
 Storing and issuing the inventories
 Recording the receipt and issues in inventories
 Physical verifications
 Follow- up function
 Material standardization and substitution
 Steps in Inventory control

 Deciding the maximum-minimum limits of inventory

 Determination of reorder points
 Determination of reorder quantity
 ABC analysis
 ABC Analysis

 is an inventory categorization method which consists in dividing items

into three categories, A, B and C: A being the most valuable items, C
being the least valuable ones. This method aims to draw managers’
attention on the critical few (A-items) and not on the trivial many (C-
items).
 Purpose of inventory

 To maintain independency of operation

 To meet variation in product demand
 To allow flexibility in product scheduling
 To provide a safeguard for variation in raw material delivery time
 To take advantages of economic purchase order size
 Inventory system

 It is a set of policy and controls that monitors level of inventory and

determines what level should be maintained, when stock should be
replenished and how large order should be.
 Single period inventory methods

 is used to identify the amount of inventory to purchase given a

perishable good or single opportunity to purchase
 Multiple period inventory system

 Demand for the product is constant and uniform throughout the period
 Lead time (time from ordering to receipt) is constant
 Price per unit of product is constant
 Inventory holding cost is based on average inventory
 Ordering or setup costs are constant
 All demands for the product will be satisfied (No back orders are
allowed)
 Valuation Inventory

 The cost associated with an entity’s inventory at the end of a reporting

period. It forms a key part of the cost of good sold calculation. And can
be also used as collateral for loan. this valuation appears as a current
asset. Inventory valuation is based on the costs incurred by the entity to
acquire the inventory, convert it into a condition that makes it ready for
sale, and have it transported into proper place for sale. You are not
allowed to add any administrative or selling costs to the cost of
inventory.
 Cost that can be included in an inventory valuations:

 Direct labor
 Direct material
 Factory overhead
 Freight
 Handling
 Import duties
 Inventory valuation methods: cost flows

 Specific identification method, where you track the specific cost of

individual items of inventory.
 First in first out, where you assume that the first items to enter the
inventory are the first ones to be used.
 Last in first out, where you assume that the last items to enter the
inventory are the first one to be used.
 Weighted average method, wherwam average of the costs in the
inventory is used in the cost of good sold.
Managerial Accounting
Session 14
• Planning and Control of Plant and Equipment or
Capital Asset

• Management of Liabilities

Prepared by:
Analyn V. Gabayoyo
MBA-NCBA
 IMPACT OF CAPITAL EXPENDITURES
Capital expenditure planning and control are critical to the long-term financial health of any company operating in the
private enterprise system. Generally, expenditures for fixed assets require significant financial resources, decisions
are difficult to reverse, and the investment affects financial performance over a long period of time. The statement
“Today's decisions determine tomorrow's profits” is pertinent to the planning and control of fixed assets.

Investment in capital assets has other ramifications or possible

consequences not found in the typical day-to-day expenditures of
a business. First, once funds have been used for the purchase of
plant and equipment, it may be a long time before they are
recovered. Unwise expenditures of this nature are difficult to
retrieve without serious loss to the investor. Needless to say,
imprudent long-term commitments can result in bankruptcy or
other financial embarrassment.
Second, a substantial increase in capital investment is likely to
cause a much higher break-even point for the business. Large
outlays for plant, machinery, and equipment carry with them
higher depreciation charges, heavier insurance costs, greater
property taxes, and possibly an expanded maintenance expense.
All these tend to raise the sales volume at which the business will
begin to earn a profit.
 Examples of capital expenditures
• Buildings (including subsequent costs that extend the useful life of a building)
• Computer equipment
• Office equipment
• Furniture and fixtures (including the cost of furniture that is aggregated and treated as a
single unit, such as a group of desks)
• Intangible assets (such as a purchased taxi license or patent)
• Land (including the cost of upgrading the land, such as the cost of an irrigation system or a
parking lot)
• Machinery (including the costs required to bring the equipment to its intended location and
for its intended use)
• Software
• Vehicles
 CONTROLLER'S RESPONSIBILITY
What part should the controller play in the planning and control of capital commitments and expenditures? The board of
directors and the chief executive officer (CEO) usually rely on first-level management to analyze the capital asset
requirements and determine, on a priority basis, which investments are in the best long-term interests of the company. The
controller has a key role to play in making the determinations. All the functional departments, like sales or manufacturing,
will have valid reasons for expansion or cost savings through the purchase of new plant and equipment. In addition, each
operating unit will have a real need to increase the capital asset expenditures to meet its goals and objectives. The
controller, with the financial knowledge of all company operations, should be able to apply objectivity by making a
thorough analysis of the proposed expenditures. In many cases, heavy losses have been incurred because the decision was
made with an optimistic outlook but without adequate financial analysis. The responsibility is placed on the controller's staff
to make an objective appraisal of the potential savings and return on investment. The board of directors and the CEO must
have a proper evaluation of proposed expenditures if they are to carry out their responsibilities effectively.
After the decisions have been made to make the investments, the controller must establish proper accountability, measure
performance, and institute recording and reporting procedures for control.
 CAPITAL BUDGETING PROCESS
Most of the accounting and reporting duties are known to the
average controller, but more involvement in the budget
procedure needs to be encouraged. Given the relative
inflexibility that exists once capital commitments are made, it is
desirable that the CEO and other high functional executives be
provided a suitable framework and basis for selecting the
essential or economically justified projects from among the many
proposals—even though their intuitive judgment may be a key
factor. And when the undertaking begins, the expenditures must
be held within the authorized limits. Moreover, for the larger
projects at least, management is entitled, once the asset begins
to operate, to be periodically informed how the actual
economics compare with the anticipated earnings or savings.
 The 5 Steps to Capital Budgeting
Big businesses need big budgets. Here are the 5 most important steps.

1. Identify and evaluate potential opportunities

2. Estimate operating and implementation costs

3. Estimate cash flow or benefit

4. Assess risk

5. Implement
 ESTABLISHING THE LIMIT OF THE CAPITAL BUDGET
A common beginning point in the annual planning process is to set a maximum amount that may be spent on capital
expenditures. There will be occasions when the “normal” limit is set aside because of an unusual investment opportunity or other
extraordinary circumstances. Normally, however, top management will set a capital budget amount, based on its judgment and
considering such factors as:
• Estimated internal cash generation (net income plus depreciation and changes in receivables and inventory investment, etc.)
• Availability and cost of external funds
• Present capital structure of the company (too much debt, etc.)
• Strategic plans and corporate goals and objectives
• Stage of the business cycle
• Near- and medium-term growth prospects of the company and the industry
• Present and anticipated inflation rates
• Expected rate of return on capital projects as compared with cost of capital or other hurdle rates
• Age and condition of present plant and equipment
• New technological developments and need to remain competitive
• Anticipated competitor actions
• Relative investment in plant and equipment as compared to industry or selected competitors
 INFORMATION SUPPORTING CAPITAL EXPENDITURE PROPOSALS
An important element in a sound capital budgeting procedure is
securing adequate and accurate information about the proposal. In this
connection, the reason for the expenditure is a relevant factor in just
what data are needed.
In a sense, a capital expenditure may call for a replacement decision,
that is, an existing piece of equipment is to be replaced. For such a
decision the information necessary would include:
• The investment and installation cost of the new piece of equipment
• The salvage value of the old machinery
• The economic life of the new equipment
• The operating cost of the new item over its life
 METHODS OF EVALUATING PROJECTS
In an effort to invest funds wisely in capital projects, companies have developed several evaluation
techniques. These expenditures provide the foundation for the firm's growth, efficiency, and competitive
strength.

The two more important valuation methods in use, which are

quantitative in nature, consist of the following or some variation
thereof:

1. Payback method. This is the simple calculation of the number of years required for the
proceeds of the project to recoup the original investment.
2. Rate of return methods. Among them are:
1. (a) The operators' method, so called because it is often used to measure operating
efficiency in a plant or division. It may be defined as the relationship of annual
cash return, plus depreciation, to the original investment.
2. (b) The accountants' method, perhaps so named because the accounting concept of
average book value and earnings (or book profit) is employed. This method is
merely the relationship of profit after depreciation to average annual outstanding
investment.
3. (c) The investors' method or discounted cash flow method. This rate of return
concept recognizes the time value of money. It involves a calculation of the present
worth of a flow of funds.
 PAYBACK METHOD

Assume that project A calls for an investment of $1,000,000 and

that the average annual income before depreciation is expected
to be $300,000. Then the payback in years would be 3.3 years,
calculated thus:
 OPERATORS' METHOD
A manner of figuring return on investment, using the figures of
the payback method, is:

The operators' method has these three advantages:

1. It is simple to understand and calculate.
2. In contrast with the payout method, it gives some weight to length of life and
overall profitability.
3. It facilitates comparison with other companies or divisions or projects, especially
where the life spans are roughly comparable.
 ACCOUNTANTS' METHOD

This technique relates earnings to the

average outstanding investment rather
than the initial investment or assets
employed. It is based on the underlying
premise that capital recovered as
depreciation is therefore available for use
in other projects and should not be
considered a charge against the original
project.
There are variations in this method, also, in
that the return may be figured before or
after income tax, and differing
depreciation bases may be employed.
 NET PRESENT VALUE

The typical capital investment is composed

of a string of cash flows, both in and out,
that will continue until the investment is
eventually liquidated at some point in the
future. These cash flows are comprised of
many things: the initial payment for
equipment, continuing maintenance costs,
salvage value of the equipment when it is
eventually sold, tax payments, receipts
from product sold, and so on. The trouble
is, since the cash flows are coming in and
going out over a period of many years.
The most common cash flow line items to include in a net
present value analysis are:
• Cash inflows from sales. If a capital investment results in
added sales, then all gross margins attributable to that
investment must be included in the analysis.
• Cash inflows and outflows for equipment purchases and
sales. There should be a cash outflow when a product is
purchased, as well as a cash inflow when the equipment
is no longer needed and is sold off.
• Cash inflows and outflows for working capital.
When a c apital investment occurs, it normally
involves the use of some additional inventory. If
there are added sales, then there will probably
be additional accounts receivable.
• Cash outflows for maintenance. If there is production
equipment involved, then there will be periodic maintenance
needed to ensure that it runs properly.
• Cash outflows for taxes. If there is a profit from new
sales that are attributable to the capital investment, then the
incremental income tax that can be traced to those
incremental sales must be included in the analysis.
• Cash inflows for the tax effect of depreciation.
Depreciation is an allowable tax deduction.
MANAGEMENT OF LIABILITIES
LIABILITIES DEFINED

Liabilities are the economic obligations of an enterprise

that are recognized and measured in conformity with
generally accepted accounting principles. Liabilities also
include certain deferred credits that are not obligations
(such as, for example, deferred credits from income tax
allocations) but that are recognized and measured in
conformity with generally accepted accounting principles.
Liabilities are measured at amounts established in the
exchanges involved, usually the amounts to be paid but
sometimes at discounted rates.
 OBJECTIVES OF LIABILITY MANAGEMENT
In the basic sense, the purpose of liability management is to assure that the enterprise has “cash adequacy”—the
ability to meet cash requirements for any purpose significant to the short- or long-term financial health of the
company. It is not merely to avoid insolvency or bankruptcy. From the standpoint of the controller, the more specific
objectives of liability management might include:

DIRECT LIABILITIES
In an attempt to categorize the types of liabilities and to
indicate some of the matters to be considered by the controller,
a brief commentary follows.
CURRENT LIABILITIES
Generally, liabilities classified as current are those due to be
paid within the operating cycle—that ordinarily is within a
period of one year. The importance of the proper segregation
of current liabilities from other liabilities rests in the role played
by various financial ratios, such as the current ratio, when funds
are borrowed.
By another related definition, current liabilities include those
obligations whose liquidation reasonably is expected to require
the use of existing current assets or the creation of new current
liabilities. Included in current liabilities are:

• Notes payable

• Accounts payable
Additionally, credit balances in various asset accounts, such as
accounts receivable, usually are reclassified to the accounts
payable category—especially at year end—or when financial
statements are published.

• Accrued expenses • Accrued income taxes

Accrued Income Tax Journal Entry

At the end of the accounting period the business needs

to accrue the estimated income tax expense due, the
accrued income tax payable journal entry is as follows:

Accrued Income Tax Journal Entry

Account Debit Credit
Income tax expense 14,000
Income tax payable 14,000
Total 14,000 14,000
RISKS OF TOO MUCH DEBT
The subject of long-term debt is closely related to the capital
structure of the entity—meaning the combination of
shareholders' equity and long-term debt that should be used
to provide for the financing needs over the span of several
years. In considering this subject, the goal of the financial
executive should be to so arrange the financing that the
owners of the business will receive the maximum economic
benefit over the longer run, through the increase in the share
price and constantly rising dividend income.
SOME BENEFITS FROM DEBT INCURRENCE
While the prudent financial executive should be aware of the risks of excessive debt, it
is also necessary to recognize some of the advantages of a reasonable debt load. Here
are a few:

• Debt reduces tax payments

• Prudent borrowings can increase the return on capital to the owners

• Debt imposes a discipline on management as to normal operations.

• Debt motivates managers and owners

• Debt causes a more appropriate review of proposed capital expenditures and acquisitions
Managerial Accounting
Financial and Related Reports,
Management of Shareholder’s Equity

Presented by: Robby B. Estanislao

Financial and Related Reports
Balance Sheet
It identifies how assets are funded, either with liabilities,
such as debt, or stockholders' equity, such as retained
earnings and additional paid-in capital. Assets are listed on
the balance sheet in order of liquidity. Liabilities are listed
in the order in which they will be paid. Short-term or
current liabilities are expected to be paid within the year,
while long-term or noncurrent liabilities are debts
expected to be paid in over one year.
Financial and Related Report
Balance Sheet - Annual
Financial and Related Report
Balance Sheet - Quarterly
Financial and Related Report
Income Statement
Also known as profit and loss statement or statement
of revenue and expenses, It is a financial statement that
reports a company’s financial performance over a specific
accounting period.
Financial performance is assessed by giving a summary of
how the business incurs its revenues and expenses
through both operating and non-operating activities. It
also shows the net profit or loss incurred over a specific
accounting period.
The income statement provides an overview of revenues,
expenses, net income and earnings per share.
Financial and Related Report
Income Statement - Annual
Financial and Related Report
Income Statement - Quarterly
Financial and Related Report
Cash Flow Statement
It reconciles the income statement with the balance sheet
in three major business activities. These activities include
operating, investing and financing activities.
• Operating activities include cash flows made from regular
business operations.
• Investing activities include cash flows from the acquisition
and disposition of assets, such as real estate and
equipment.
• Financing activities include cash flows from debt and
equity investment capital.
Management of Shareholder’s Equity
Earnings per share
It is used to determine the dividend payments as well
as future increases in the value of shares.

Earnings per share = Net income – Preferred Dividends

Average number of common shares outstanding
Management of Shareholder’s Equity
Price-Earnings Ratio
It is the relationship between the market price of a share
of stock and the stock’s current earnings per share.

Price-earnings ratio = Market price per share

Earnings per share
Management of Shareholder’s Equity
Dividend Payout Ratio
It measures the portion of current earnings being paid
out in dividends

Dividend Payout Ratio (%) = Dividends per share

Earnings per share
Management of Shareholder’s Equity
Dividend Yield Ratio
It measures the rate of return (in the form of cash
dividends only) that would be earned by an investor who
buys common stock at the current market price. A low
dividend yield ratio is neither bad nor good buy itself.

Dividend Yield Ratio (%) = Dividends per share

Market price per share
Management of Shareholder’s Equity
Return on Total Assets
It is a measure of operating performance that shows how
well assets have been employed.

Return on total assets = Net Income + [Interest expense (1 – Tax rate)]

Average Total Assets
Management of Shareholder’s Equity
Return on Common Stockholders’ Equity
It shows the net income earned for each investment by
the common stockholders.

Return on common = Net Income + [Interest expense (1 – Tax rate)]

stockholders’ equity (%) Average Total Assets

Where:

Average common = Average total stockholders’ equity – Average preferred stock

Stockholders’ equity
Management of Shareholder’s Equity
Financial Leverage
It involves acquiring assets with funds that have been
obtained from creditors or from preferred stockholders
at a fixed rate of return. If the assets in which the funds
are invested are able to earn a rate of return greater than
the fixed rate of return required by the funds’ suppliers,
then the company has positive financial leverage and the
common stockholders benefit.
If assets are unable to earn an adequate rate to cover the
interest costs of debt and preferred dividends (negative
financial leverage), the common stockholder suffers.
Management of Shareholder’s Equity
Book Value per Share
It measures the amount that would be distributed to holders of each share
of common stock if all assets were sold at their balance sheet carrying
amounts (i.e., books values) and if all creditors were paid off. Thus, book
value per share is based entirely on historical costs. The formula for
computing it is as follows:

Book Value per share = Common stockholders’ equity (Total stockholders’ equity – Preferred stock)
Number of common shares outstanding
 NATIONAL COLLEGE OF BUSINESS AND ARTS
MASTER IN BUSINESS ADMINISTRATION
Aurora Boulevard, Cubao, Quezon City  Telephone Nos. 913-87-85 to 87

MANAGERIAL ACCOUNTING

Reporter: GLORINA AMACANIN-ONTOG Date: August 24, 2018

Professor: DR. ERLINDA DAQUIGAN
Topics:
• Improving External Financial Reporting
• Internal Management Report

What is financial reporting?

Financial Reporting is the process of preparation, presentation and submission of

general purpose financial statements and other related reports.

General Purpose Financial Statements- are those intended to meet the needs of users
who are not in a position to demand reports tailored to meet their particular information
needs.

External reporting requires an entity to provide well documented reports that can be
circulated among the public and stockholders. Such a report does not include
confidential information about the organization unless it is important to achieve a
specific purpose. External reporting is also about furnishing shareholders and public
with finance related information on a periodic basis in order to assist decision and
control related process.

The finance related reports that are published are crafted primarily for meeting the
information requirements of different users as well as for discharging the entity’s
accountability needs. Companies are allowed to examine external reporting as per the
conceptual structure of finance reporting. These structures are crafted to offer users,
prepares, standard setters and auditors with comprehensive concepts pertaining to
accounting for the purpose of guiding reporting. Once the organization has understood
the practicing style as well as introspection related analysis, it should gear up for
external reporting.

External Reporting Classification

External reporting is classified into two different categories. The first category involves
reporting done on a voluntary basis by the entity in view of its aim as well as for the
purpose of accountability, which may further assist the entity in providing external
 NATIONAL COLLEGE OF BUSINESS AND ARTS
MASTER IN BUSINESS ADMINISTRATION
Aurora Boulevard, Cubao, Quezon City  Telephone Nos. 913-87-85 to 87

reports. The second category revolves around reporting on a mandatory basis, which is
important for an entity so that it achieves its goals

Reasons for External Reporting

A company opts for external reporting for a number of reasons. Firstly, an external
report is meant for the public so that they come to know more about the financial health
and operations of the company. Secondly, external reports are also used for attracting
interested and potential customers as well as investors. In addition to this, an external
report consists of data and information that can be used by industry experts and
analysts for assessing the existing condition of the entity.

Even though there is no specific way of preparing an external report, an entity should
stick to some important points, which can help them prepare an informative and
coherent report. The entities should arrange information in a logical way so that their
readers are able to follow the document easily. Companies shouldn’t include any secret
related information in the report.

Purpose of Financial Statements

The objective of financial statements is to provide information about the financial

position, performance and changes in financial position of an enterprise that is useful to
a wide range of users in making economic decisions (IASB Framework).

Resposibility for Financial Statements

The responsibility for the fair presentation and reliability of financial statements rest with
the management of the reporting entity particularly the head of finance/accounting office
and the head of entity or his authorized representative.

Components of Financial Statements

1. Statement of Financial Position

2. Statement of Financial Performance
3. Statement of Changes in Equity
4. Statement of Cash Flows
5. Notes to Financial Statements

Users of Financial Statements

 NATIONAL COLLEGE OF BUSINESS AND ARTS
MASTER IN BUSINESS ADMINISTRATION
Aurora Boulevard, Cubao, Quezon City  Telephone Nos. 913-87-85 to 87

➢ Managers require Financial Statements to manage the affairs of the company by

assessing its financial performance and position and taking important business
decisions.
➢ Shareholders use Financial Statements to assess the risk and return of their
investment in the company and take investment decisions based on their
analysis.
➢ Prospective Investors need Financial Statements to assess the viability of
investing in a company. Investors may predict future dividends based on the
profits disclosed in the Financial Statements. Furthermore, risks associated with
the investment may be gauged from the Financial Statements. For instance,
fluctuating profits indicate higher risk. Therefore, Financial Statements provide a
basis for the investment decisions of potential investors.
➢ Financial Institutions (e.g. banks) use Financial Statements to decide whether
to grant a loan or credit to a business. Financial institutions assess the financial
health of a business to determine the probability of a bad loan. Any decision to
lend must be supported by a sufficient asset base and liquidity.
➢ Suppliers need Financial Statements to assess the credit worthiness of a
business and ascertain whether to supply goods on credit. Suppliers need to
know if they will be repaid. Terms of credit are set according to the assessment
of their customers' financial health.
➢ Customers use Financial Statements to assess whether a supplier has the
resources to ensure the steady supply of goods in the future. This is especially
vital where a customer is dependent on a supplier for a specialized component.
➢ Employees use Financial Statements for assessing the company's profitability
and its consequence on their future remuneration and job security.
➢ Competitors compare their performance with rival companies to learn and
develop strategies to improve their competitiveness.
➢ General Public may be interested in the effects of a company on the economy,
environment and the local community.
➢ Governments require Financial Statements to determine the correctness of tax
declared in the tax returns. Government also keeps track of economic progress
through analysis of Financial Statements of businesses from different sectors of
the economy.

Qualitative Characteristics of Financial Reporting

a. Understandability
b. Relevance
c. Materiality
d. Timeliness
e. Reliability
f. Faithful representation
 NATIONAL COLLEGE OF BUSINESS AND ARTS
MASTER IN BUSINESS ADMINISTRATION
Aurora Boulevard, Cubao, Quezon City  Telephone Nos. 913-87-85 to 87

g. Substance over form

h. Neutrality
i. Prudence
j. Completeness
k. Comparability

Understandability- information is understandable when users might reasonably be

expected to comprehend its meaning.

Relevance – information is relevant to users if it can be used to assist in evaluating

past, present or future events or in confirming, or correcting, past evaluations. In order
to be relevant, information must also be timely.

Materiality- information is material if its omission or misstatement could influence the

decisions of users or assessments made on the basis of the financial statements.
Materiality depends on the nature or size of the item or error, judged in the particular
circumstances of its omission or misstatement.

Timeliness – the usefulness of financial statements is impaired if they are not made
available to users within a reasonable period after the reporting date.

Reliability – reliable information is free from material error and bias, and can be
depended on by users to represent faithfully that which it purports to represent or could
reasonably be expected to represent.

Faithful representation – information to represent faithfully transactions and other

events, it should be presented in accordance with the substance of the transactions and
other events, and not merely their legal form.

Substance over form – if information is to represent faithfully the transactions and other
events that it purports to represent, it is necessary that they be accounted for and
presented in accordance with their substance and economic reality, and not merely their
legal form. The substance of transactions or other events is not always consistent with
their legal form.

Neutrality – information is neutral if it is free from bias. Financial statements are not
neutral if the information they contain has been selected or presented in a manner
designed to influence the making of a decision or judgment in order to achieve a
predetermined result or outcome.
 NATIONAL COLLEGE OF BUSINESS AND ARTS
MASTER IN BUSINESS ADMINISTRATION
Aurora Boulevard, Cubao, Quezon City  Telephone Nos. 913-87-85 to 87

Prudence – is the inclusion of a degree of caution in the exercise of the judgments

needed in making the estimates required under conditions of uncertainty, such that
assets or revenue are not overstated and liabilities or expenses are not understated.

Completeness – the information in financial statements should be complete within the

bounds of materiality and cost.

Comparability – information in financial statements is comparable when users are able

to identify similarities and differences between that information and information in other
reports.

Internal Management Report

Internal and management reporting are the documents that employees put together
in order to disclose relevant data to superiors so that management can make
decisions and advise other senior executives. Often these reports contain
proprietary information and are for internal use only.

Internal reports come from every department: marketing, customer service, IT, finance,
sales and operations. They serve to keep internal stakeholders in the know of company
activities and, in the case of financial reports, are used to monitor a company’s financial
health and for strategic decision making.

Examples of these reports include:

• Cash reports
• Status reports
• Financial reports
• Board reports
• Budget books

The Daily Cash Report is used to report on the daily cash balance and to help
manage cash on a weekly basis.

A status report is a simple document that exists between the project manager, the
client and the internal team to periodically update everyone as to where the project is in
relation to where it should be at that point in time.

Financial Reports- a document showing the financial position, performance and cash
flows of an entity.
 NATIONAL COLLEGE OF BUSINESS AND ARTS
MASTER IN BUSINESS ADMINISTRATION
Aurora Boulevard, Cubao, Quezon City  Telephone Nos. 913-87-85 to 87

Board Report - is the document used by the Board of Directors to make decisions on
behalf of the entity/company.

Budget Books- A budget helps you to reach your financial goals. It provides a system
for estimating how much money you will need to cover expenses during a particular
period and then matches your actual expenditures against the estimated amounts.
REPORTS TO SHAREHOLDERS
REPORTS TO CREDITORS
DE MESA, KATHLEEN MAE
NCBA - MBA
 OBJECTIVES
•SHAREHOLDERS
•CREDITORS
 SHAREHOLDER
• A SHAREHOLDER, COMMONLY REFERRED TO AS A
STOCKHOLDER, IS ANY PERSON, COMPANY,
INSTITUTION THAT OWNS AT LEAST ONE SHARE OF A
COMPANY’S STOCK.
• BECAUSE SHAREHOLDERS ARE A COMPANY’S
OWNERS, THEY REAP THE BENEFITS OF THE
COMPANY’S SUCCESSES IN FORM OF INCREASED
STOCK VALUATION.
 WHAT IS REPORTING TO
SHAREHOLDERS?
• REPORTING TO SHAREHOLDERS IS THE PROCESS OF
PROVIDING INFORMATION AND UPDATES TO THESE PART-
OWNERS OF THE COMPANY. SUCH REPORTS HELP THEM
BECOME UPDATED AND AWARE ABOUT THE STATUS AND
PROGRESS OF THEIR SHARES IN A PARTICULAR COMPANY.
 WHO DOES REPORTING TO
SHAREHOLDERS?
• PROVIDING REPORTS AND UPDATES TO
SHAREHOLDERS IS A TASK OF THE MEMBERS
AND LEADERS OF THE BUSINESS TEAM. THIS IS
TO KEEP THE SHAREHOLDERS INFORMED
ABOUT THE STANDING AND DEVELOPMENT
OF THE TEAM, THE BUSINESS, AND THEIR
SHARES. THE COMPANY SECRETARY MAY BE
DELEGATED TO COMPILE THE REPORTS OF
OTHER MEMBERS FOR DATA ORGANIZATION.
 WHY DO PEOPLE DO REPORTING
TO SHAREHOLDERS?
• COMMUNICATION IS THE PRIMARY REASON WHY TEAMS DO
REPORTING TO SHAREHOLDERS. TEAM MEMBERS HAVE TO
REPORT THE PERFORMANCE OF THE COMPANY TO THE PART-
OWNERS, AS THE COMPANY HAS THE CHANCE TO GAIN
PROFIT IF THE COMPANY HAS A GOOD PERFORMANCE.
HOWEVER, THE COMPANY WILL LOSE PROFIT IF THE
COMPANY HAS A POOR PERFORMANCE.
• SINCE REPORTING TO SHAREHOLDERS ALLOWS TEAM
MEMBERS AND LEADERS TO GIVE ESSENTIAL INFORMATION
ABOUT THE TEAM’S STATUS AND PROGRESS, THEY AND THE
SHAREHOLDERS WILL BE ABLE TO COMPARE PAST AND
PRESENT INFORMATION AND ANALYZE THEM TO YIELD
STRONG CONNECTIONS, INFERENCES, CONCLUSIONS, AND
DECISIONS.
 HOW TO DO REPORTING TO
SHAREHOLDERS / WAYS TO DO
REPORTING TO SHAREHOLDERS
• Report
The traditional format for
annual reports is a printed
publication. It generally includes
an introduction by the chief
executive, a summary of the
company’s financial position
and results, and a review of
activities over the previous 12
months. You can present the
annual report by distributing
copies to shareholders, either
by mail or in person at an
annual general meeting.
 HOW TO DO REPORTING TO
SHAREHOLDERS / WAYS TO DO
REPORTING TO SHAREHOLDERS
• Library
You can make the contents of an annual report available to
potential investors and their advisers by placing a digital copy
online, either on your own website or on an online library
such as AnnualReports.com. Subscribers to annual report
libraries can obtain instant access to your company’s financial
information before making investment decisions. Placing
copies in a library enables you to present your annual report
to investors who you cannot meet personally.
 HOW TO DO REPORTING TO
SHAREHOLDERS / WAYS TO DO
REPORTING TO SHAREHOLDERS
 HOW TO DO REPORTING TO
SHAREHOLDERS / WAYS TO DO
REPORTING TO SHAREHOLDERS
• Conference Call
If you cannot arrange a meeting for
shareholders, offer them the
opportunity to participate in a
conference call or Web conference.
During the event, a senior executive,
such as the CEO or finance director,
presents the results and invites
questions at the end of the
presentation. If you have a large
number of shareholders, you might
have to schedule several conference
calls or create archive copies of the
Web conference.
 HOW TO DO REPORTING TO
SHAREHOLDERS / WAYS TO DO
REPORTING TO SHAREHOLDERS
• Press Information
You can also present elements of
your annual report through a press
release or editorial coverage. Prepare
a press release that includes financial
highlights and a summary of the
review of activities. Provide contact
details for investors to request a copy
of a printed report. You can also
invite journalists to interview senior
executives about the results and
obtain more detailed press coverage.
 ANNUAL REPORT
• AN ANNUAL REPORT IS A COMPREHENSIVE REPORT ON A
COMPANY'S ACTIVITIES THROUGHOUT THE PRECEDING YEAR.
ANNUAL REPORTS ARE INTENDED TO GIVE SHAREHOLDERS
AND OTHER INTERESTED PEOPLE INFORMATION ABOUT THE
COMPANY'S ACTIVITIES AND FINANCIAL PERFORMANCE.
THEY MAY BE CONSIDERED AS GREY LITERATURE. MOST
JURISDICTIONS REQUIRE COMPANIES TO PREPARE AND
DISCLOSE ANNUAL REPORTS, AND MANY REQUIRE THE
ANNUAL REPORT TO BE FILED AT THE COMPANY'S REGISTRY.
COMPANIES LISTED ON A STOCK EXCHANGE ARE ALSO
REQUIRED TO REPORT AT MORE FREQUENT INTERVALS
(DEPENDING UPON THE RULES OF THE STOCK EXCHANGE
INVOLVED).
 TYPICAL ANNUAL REPORT
INCLUDES:
• General corporate • Financial statements,
information including
✓ Balance Sheet also known as
• Operating and financial Statement of Financial Position
review ✓ Income Statement also Profit
and Loss Statement.
• Director's Report ✓ Statement of Changes in Equity
✓ Cash Flow Statement
• Corporate governance
• Notes to the financial
information statements
• Chairpersons statement • Accounting policies
• Auditor's report
 CREDITORS
• A CREDITOR IS AN ENTITY (PERSON OR
INSTITUTION) THAT EXTENDS CREDIT BY
GIVING ANOTHER ENTITY PERMISSION TO
BORROW MONEY INTENDED TO BE REPAID IN
THE FUTURE.
 TYPES OF CREDITORS

•SECURED
•UNSECURED
 TYPES OF CREDITORS
• SECURED CREDITORS
A SECURED CREDITOR IS GENERALLY A BANK OR OTHER
ASSET-BASED LENDER THAT HOLDS A FIXED OR
FLOATING CHARGE OVER A BUSINESS ASSET OR
ASSETS. WHEN A BUSINESS BECOMES INSOLVENT, SALE
OF THE SPECIFIC ASSET OVER WHICH SECURITY IS HELD
PROVIDES REPAYMENT FOR THIS CATEGORY OF
CREDITOR.
 TYPES OF CREDITORS
• UNSECURED CREDITORS
AN UNSECURED CREDITOR IS AN INDIVIDUAL OR
INSTITUTION THAT LENDS MONEY WITHOUT
OBTAINING SPECIFIED ASSETS AS COLLATERAL.
THIS POSES A HIGHER RISK TO THE CREDITOR
BECAUSE IT WILL HAVE NOTHING TO FALL BACK
ON SHOULD THE BORROWER DEFAULT ON THE
LOAN.
 Computer Systems and
Related Technology
Role of Computer in Accounting
and Financial Analysis

NCBA - MBA Management Accounting

By: Patricia Jean DT Digo
IT Support Model
A Computer System
IT Support Models for Finance Operations

IT Support Model - a partnership between the IT group and the

business.
IT Support Models for Finance Operations

Challenges:
Inadequate Trained End User - end users are not properly trained, nor
has the appropriate knowledge transfer occurred to allow them to accept
the system and use it in the manner that it was designed

Need for Mixed Skill Sets - pertains to both technical and business
process knowledge. It is particularly important to emphasize the need for
some financial knowledge within the IT support model
IT Support Models for Finance Operations

Challenges:
Geographic Challenges - A decision must be made on how IT resources
should be located. Resources can be centrally located or they can be
dispersed to many locations.
❖ Month-end Close Support - The bulk of financial processing
occurs during month-end close. Large volumes of online
transactions occur during the day, and critical programs are
executed via batch processing in the evening
IT Support Models for Finance Operations

Challenges:
Staff Retention - Another challenge of any IT organization is the ability
to retain knowledgeable employees who will continue to support the
system
Suggestions on how to minimize the
impact of staff turnover include:
1. Ensure that critical support roles have both a
primary and a back up contact. 4. Involve staff in projects that include
2. Cross-train staff in other aspects of the upgrading and/or enhancing the system.
support model 5. Keep support documentation current
3. Rotate staff on a regular basis to ensure that in order to facilitate knowledge transfer
they gain exposure to other areas of the
support model
IT Support Models for Finance Operations

Challenges:
Complicated Systems Architecture - a multisystem environment
contains integration challenges with a heavy emphasis on the need for
interface programs, reconciliations, and synchronization of data. There
must be a well-defined and accepted process for evaluating request for
system changes
Lack of an Established Escalation Process - when production issue is
identified, it is imperative that the issue is logged through the appropriate
mechanisms so it can be tracked and escalated through the support
model
IT Support Models for Finance Operations

Challenges:
Lack of Documentation - the challenge is ensuring that it is kept up to
date, which is especially difficult in an environment where enhancements
are frequent. Each document should have a designated owner who is
responsible for updating if necessary
IT Support Models for Finance Operations

Challenges:
Changing Management reporting requirements - this often change,
and some are routinely impacted by company reorganizations.

❖ Management reporting systems or data warehouses must be

designed and implemented to allow flexibility in the areas of reporting
layouts, metrics, and organizational structures. These changes must
be thouroughly tested to ensure that reporting tools are ribust enough
for the end user
Asset Ledger In
Detail in ERP
Asset Ledger in Detail in ERP

ERP Systems – old name is MRP (Material Requirements Planning)

- ERP software functions like a central nervous system for a

business. It collects information about the activity and state of
different divisions, making this information available to other parts,
where it can be used productively
- is designed to combine all of company’s activities into a
single database
- First ERP is formed by the joint venure between J.I. Case
(manufacturer of tractors and other construction machinery) and IBM.
Asset Ledger in Detail in ERP

Key players of ERP

○ SAP

○ Oracle

○ Infor

○ Microsoft
Asset Ledger in Detail in ERP

2 Significant problems are encountered by the ERP:

● The receipt of capital equipment and the installation of equipment

are oftne performed by two different areas of the organization,
both apart from the accounting department
● To accurately determine the depreciable basis for equipment ,
fixed asset modules often rely on the invoice.
Asset Ledger in Detail in ERP
Integration of the ERP and EAM Systems
- A popular solution to the problem is augmenting the ERP with the
implementation of an enterprise asset management (EAM)

○ EAM is developed with a focus on the operational processes

associated with asset management versus the financial focus
brought by ERP.

- Broad term used to describe software specifically designed

to manage an organization’s physical assets( bldgs,
equipment)
E-Commerce
Security
E-Commerce Architectures

● Traditional Architectures
● Demilitarized Zone
● Layered Architecture
● Secure “Insider” Access
Critical Security Measures

● Firewalls
● Intrusion Detection and Response
● Encryption
● Authentication
● Access Control
● Host Hardening
● Vulnerability Testing
Role
of Computer
in
Accounting
and
Financial
Analysis
Accounting Information Systems
Accounting Information Systems
- An information system is a formal process for collecting data,
processing the data into information, and distributing that
information to users.
Accounting Information Systems
Functions of an Accounting Information System
▪ efficient and effective collection and storage of data concerning an
organization’s financial activities, including getting the transaction
data from source documents, recording the transactions in
journals, and posting data from journals to ledgers.

▪ supply information useful for making decisions, including

producing managerial reports and financial statements

▪ make sure controls are in place to accurately record and process

data.
Advantages:

Automation Data Access Cost-effective

Accuracy Reliability Security

 Information Systems Planning
&
Automated Financial Accounting Systems

Prepared by: Ludelyn B. Dumalague

 Information System Planning
▪ The process of determining and analyzing information requireme
nts and integrating those requirements with overall organizational
objectives.

▪ IS are widely accepted as an important organizational resource.

▪ IS needs to be planned to ensure effective and efficient utilization

.
 3 Types of Planning
establishing the relationship between the overall organizational plan
Strategic and the IS plan

Involving or pertaining to actions, ends, or means that are immediate.

Tactical Management control.

Operational
04
Allocation of tasks to each organizational planning control unit in order to
achieve objectives of tactical plan.
 Planning Difficulties
• Business goals and systems plans need to align

• Rapid changing technology

 The Changing World of Planning

▪ The future can be predicted

▪ Time is available
▪ IS supports and follows the business
▪ Top management knows best
Techniques for IS and organizational
planning into four categories:

▪ Alignment

▪ Impact

▪ Opportunity

▪ Organization
Automated Financial Accounting System
Automated Financial Accounting System
• Are software applications that perform tasks determined by a
company’s management. Broadly speaking, financial systems
can track assets, liabilities, income, expenses, transactions in
ventory, invoices and more.
 Automation Benefits
• The ability to accurately and efficiently track financial information is
crucial in maximizing profitability and reducing overhead expenses.
Automated financial systems can allow to quickly assemble financi
al statements and balance sheets, which not only eliminates length
ly manual processes but also provides the necessary data to make
important business decisions.
 Software Selection
Many automated financial systems are similar in their basic function
, but subtle differences in features can make implementation of new
software. Implementing a system is a significant corporate decision
that requires commitment and appropriate planning can help ensure
a smooth implementation.
 Software Selection
SAP, Sage, Oracle, Xero etc. are examples of financial systems
SELECTING A FINANCIAL
INFORMATION SYSTEMS
SYSTEMS PERFORMANCE
MANAGEMENT
MARIANNE ELAINE A. DE CASTRO
FINANCIAL INFORMATION SYSTEMS
• Software programs that help businesses manage their money.
• It can be set up to keep track of your banking, accounts payable and
accounts receivable;
• To generate standard financial reports such as a profit-and-loss statement.
• To report the information in various formats.

IT IS IMPORTANT TO CHOOSE A SYSTEM THAT SUITS

YOUR BUSINESS NEEDS!!!
WHAT ARE THE BENEFITS OF FINANCIAL
INFORMATION SYSTEMS?
• This area looks at the overall financial picture of a project, business or individual,
ACCOUNTING incorporating both accounts payable and receivables.
• The larger the project, the more beneficial a FIS becomes.

FUNDS • The FIS examines where funds are coming in and where funds are going out.
• Unlike accounting, however, FIS can make use of rigid budget controls.

• By allowing users to examine reports on any aspect of the financial data, it assists in keeping

REPORTING track of past expenses, as

• It helps identify different departments and divisions that consistently go over budget,
operate within the budget and in under budget.

SPECIALIZATION • Specialized FIS are available, ranging from those designed for stock holders and traders to
medical institutions.
SELECTING A FINANCIAL INFORMATION
SYSTEM
• The controller is primarily responsible for seeing that the FIS meets the
needs of those who receives and use its output: management,
shareholders, creditors, suppliers, customers, government agencies, and
stock exchanges as well as the general public.
CRITERIAS YOU MIGHT CONSIDER IN
SELECTING FINANCIAL INFORMATION SYSTEM
• Adaptability. The modern day business environment transforms itself
without any warning due to globalization, technology advancement and
economic turmoil. As a leader, you know how complicated, expensive
and time-consuming it is when you have to re-design your systems to fit
current and future demands. So, get ready for the latest financial
accounting system in the market, which is designed to handle these
changes without interrupting your current systems.
“Get software that enables you, not controls you”
CRITERIAS YOU MIGHT CONSIDER IN
SELECTING FINANCIAL INFORMATION SYSTEM
• Speed. How quickly can you respond to requests for internally or
externally driven information? Critical competition, opportunities or
changes, are a few of the numerous factors that require real-time
information. As the traditional financial accounting process is rather
lengthy, by the time you get your hands on meaningful information, the
opportunities might have already passed, or even worse, your
competitors have already acted and proceeded while you are still
struggling with generating some up-to-date reports. Therefore, a quick-
to-respond financial accounting system is extremely necessary in
providing you the tools to access information whenever you need it,
hence, you can seize opportunities, move forward and leave your
competitors behind.
CRITERIAS YOU MIGHT CONSIDER IN
SELECTING FINANCIAL INFORMATION SYSTEM
• Embedded Analytics. Does your current financial accounting system
provide dashboards, data visualizations, interactive reports, mobile
reporting or visual workflows? These are high-end tools that offer
analytical capability to support decision-making related to specific tasks.
Embedded analytics allow you to track financial performance in multiple
aspects. For instance, you can track your company’s performance by
business unit, department, product, vendor, etc. In short, look for a
system that can offer you meaningful business and financial insight on
demand, preferably via a dashboard.
CRITERIAS YOU MIGHT CONSIDER IN
SELECTING FINANCIAL INFORMATION SYSTEM
• Global Capabilities. As CFOs in this flattening world, be ready for
multinational financial management. The global capability will provide
you tools to work with multiple geographic regions on a single platform.
It should also be able to ease the differences in structures of
multinational businesses, for example language, currency, taxation and
legal compliance. Therefore, the solution you need should offer a range
of deployment options but with minimal requirements for support to
accommodate multiple geographic regions.
CRITERIAS YOU MIGHT CONSIDER IN
SELECTING FINANCIAL INFORMATION SYSTEM
• Vendor Support and Vision. Do you have an ineffective in-house
support team for your financial accounting system? Instead partner with
software vendors who you can trust. These IT companies not only
supply you with advanced software but also support you with excellent
after-sales services, i.e. from availability of resources and degree of
expertise to global presence. Your software vendor should share the
same vision, commitment and resources with your company so that you
can take advantages of these latest technologies to help your business
grow faster and stronger.
PERFORMANCE MANAGEMENT SYSTEMS
• Systems that facilitate the attainment of individual and corporate goals.
Performance Management systems enable you to track and monitor the
performance of individual employees, departments, and the
organization overall.
• These systems are often based on organizational and job specific
competencies which need to be obtained for successful job performance.
• More than just an annual performance review, performance
management is the continuous process of setting objectives, assessing
progress and providing on-going coaching and feedback to ensure that
employees are meeting their objectives and career goals.
HERE ARE SOME PRACTICES TO HAVE AN
EFFECTIVE MANAGEMENT SYSTEM:
• Be job specific, covering a broad range of jobs in the organization
• Align with your organization’s strategic direction and culture
• Be practical and easy to understand and use
• Include a collaborative process for setting goals and reviewing performance
based on two-way communication between the employee and manager
• Provide training and development opportunities for improving performance
• Identify and recognize employee’s accomplishment
• Provide constructive and continuous feedback on performance
• Monitor and measure results and behaviors
PERFORMANCE MANAGEMENT CYCLE
Start of Performance
Management Cycle
Plan
•Identify, clarify and agree
upon expectations
•Identify how results will
be measured
•Agree on monitoring
process
•Document the plan

End of Performance
On-going
Management Cycle
Review and
Evaluate Monitor
•Monitor and evaluate
•Annual performance progress
review and evaluation
•Take corrective action or
•Sign off make changes, if required
•New cycle begins
PHASE 1 - PLAN
The planning phase is a collaborative effort involving both managers and employees
during which they will:
• Review the employee’s job description to determine if it reflects the work that the
employee is currently doing. If the employee has taken on new responsibilities or the
job has changed significantly, the job description should be updated.
• Identify and review the links between the employee’s job description, his or her work
plan and the organization’s goals, objectives and strategic plan.
• Develop a work plan that outlines the tasks or deliverables to be completed, expected
results and measures or standards that will be used to evaluate performance.
• Identify training objectives that will help the employee grow his or her skills,
knowledge, and competencies related to their work.
• Identify career development objectives that can be part of longer-term career planning.
SETTINGS OBJECTIVES AND MEASUREMENTS
• Managers need to ensure that the objectives are a good representation of the
full range of duties carried out by the employee, especially those everyday
tasks that can take time but are often overlooked as significant
accomplishments.
• Objectives and indicators need to be SMART:
• Specific. Specify clearly what is to be done, when it is to be done, who is to accomplish it
and how much is to be accomplished.
• Measurable. Ask questions such as: How much? How many? How will I know when it is
accomplished? Multiple measures should be used if possible.
• Attainable. Assure there is reasonable path to achievement and feasible odds that you
will get there.
• Realistic. The objective needs should match the level of complexity with the employee’s
experience and capability and no insurmountable forces outside the control of the
employee should hinder its accomplishment.
• Time-bound. Be clear about the time frame in which performance objectives are to be
achieve. In most cases, objectives are to be completed by the end of the performance
review period.
PHASE 2 - MONITOR
• Managers should not micro-manage employees, but rather focus their
attention on results achieved, as well as individual behaviors and team
dynamics affecting the work environment.
• During this phase, the employee and manager should meet regularly to:
• Assess progress towards meeting performance objectives
• Identify any barriers that may prevent the employee from accomplishing
performance objectives and what needs to be done to overcome them
• Share feedback on progress relative to the goals
• Identify any changes that may be required to the work plan as a result of a shift in
organization priorities or if the employee is required to take on new responsibilities
• Determine if any extra support is required from the manager or others to assist the
employee in achieving his or her objectives.
CONTINUOUS COACHING
• Performance Management includes coaching employees to address
concerns and issues related to performance so that there is a positive
contribution to the organization. Coaching means providing direction,
guidance, and support as required on assigned activities and tasks. As a
coach, managers need to recognize strengths and weaknesses of
employees and work with employees to identify opportunities and
methods to maximize strengths and improve weak areas.
PROVIDING FEEDBACK
• Positive feedback involves telling someone about good performance.
Make this feedback timely, specific and frequent. Recognition for
effective performance is a powerful motivator.
• Constructive feedback alerts an individual to an area in which
performance could improve. It is descriptive and should always be
directed to the action, not the person. The main purpose of constructive
feedback is to help people understand where they stand in relation to
expected and/or productive job and workplace behavior.
POINTS YOU MIGHT CONSIDER WHEN GIVING
CONSTRUCTIVE FEEDBACK:
• Prepare
• State the facts
• Listen
• Agree on an action plan
• Follow up
PHASE 3 - REVIEW
• The performance assessment or appraisal meeting is an opportunity to
review, summarize and highlight the employee’s performance over the
course of the review period.
• Managers should review their performance management notes and
documentation generated throughout the year in order to more
effectively assess the employee’s performance. Only issues that have
already been discussed with the employee should be part of the
assessment documentation and meeting. This will ensure that the
managers deal with performance problems when they arise and that
there are no surprises during the performance assessment meeting.
IN THE PERFORMANCE ASSESSMENT MEETING,
EMPLOYEES AND MANAGERS WILL:
• Summarize the work accomplished during the previous year relative to
the goals that were set at the beginning of the performance period.
• Document challenges encountered during the year and identify areas for
training and/or development.
• Identify and discuss any unforeseen barriers to the achievement of the
objectives
PERFORMANCE ASSESSMENT FORM
• It is a tool that helps guide and document a discussion between manager
and an employee about the employee’s performance over the past year.
• Below are some guidelines on what to include on a performance
assessment form:
• General information
• Assessment form instructions
• Performance objectives and measures
• Competency profile
• Clear rating scales
• Employee training and development plan
• Sign-off section
 National College of Business and Arts
Student: Marie D. Odlos August 2018

Professor: Dr Erlinda Daquigan

Subject (Topic): Managerial Accounting (Information Security Systems, Project Risk Management and Effective Project Communication)

Information Security Systems

Definition of Terms
 Information security means protecting information (data) and information systems from unauthorized
access, use, disclosure, disruption, modification, or destruction.
 Information Security management is a process of defining the security controls in order to protect the
information assets.

Security Program Objectives

1. Protect the company and its assets.
2. Manage Risks by Identifying assets, discovering threats and estimating the risk.
3. Provide direction for security activities by framing of information security policies, procedures,
standards, guidelines and baselines
4. Information Classification.
5. Security Organization, and
6. Security Education.

Security Management Responsibilities

 Determine objectives, scope, policies, re expected to be accomplished from a security program
 Evaluate business objectives, security risks, user productivity, and functionality requirements.
 Define steps to ensure that all the above are accounted for and properly addressed

Approaches to Build a Security Program

 Top-Down Approach
The initiation, support, and direction comes from the top management and work their way through middle
management and then to staff members. It is the best approach.
 Bottom-Up Approach
The lower-end team comes up with a security control or a program without proper management support and
direction.

Three Categories of Security Control

Administrative Controls: Developing and publishing of policies, standards, procedures, and guidelines;
Screening of personnel; Conducting security-awareness training, and Implementing change control procedures.
Technical or Logical Controls: Implementing and maintaining access control mechanisms; Password and
resource management; Identification and authentication methods; Security devices and Configuration of the
infrastructure.
Physical Controls: Controlling individual access into the facility and different departments; Locking systems and
removing unnecessary floppy or CD-ROM drives; Protecting the perimeter of the facility; Monitoring for
intrusion and Environmental controls.

The Elements of Security

1. Vulnerability - characterizes the absence or weakness of a safeguard that could be exploited.
E.g.: a service running on a server, unpatched applications or operating system software, unrestricted modem
dial-in access, an open port on a firewall, lack of physical security etc.
2. Threat - Any potential danger to information or systems. It is a possibility that someone (person, s/w) would
identify and exploit the vulnerability. The entity that takes advantage of vulnerability is referred to as a threat
agent. E.g.: A threat agent could be an intruder accessing the network through a port on the firewall
3. Risk - Risk is the likelihood of a threat agent taking advantage of vulnerability and the corresponding business
impact. Reducing vulnerability and/or threat reduces the risk.
E.g.: If a firewall has several ports open, there is a higher likelihood that an intruder will use one to access the
network in an unauthorized method.
4. Exposure - An exposure is an instance of being exposed to losses from a threat agent.
Vulnerability exposes an organization to possible damages.
E.g.:If password management is weak and password rules are not enforced, the company is exposed to the
possibility of having users' passwords captured and used in an unauthorized manner.
 National College of Business and Arts
Student: Marie D. Odlos August 2018

Professor: Dr Erlinda Daquigan

Subject (Topic): Managerial Accounting (Information Security Systems, Project Risk Management and Effective Project Communication)

5. Countermeasure or Safeguard - It is an application or a s/w configuration or h/w or a procedure that mitigates

the risk.
E.g.: strong password management, a security guard, access control mechanisms within an operating system,
the implementation of basic input/output system (BIOS) passwords, and security-awareness training.

Core Information Security Principles

1. Confidentiality
 Ensures that the necessary level of secrecy is enforced at each junction of data processing and prevents
unauthorized disclosure. This level of confidentiality should prevail while data resides on systems and
devices within the network, as it is transmitted and once it reaches its destination.
 Threat sources:
Network Monitoring
◦ Shoulder Surfing- monitoring key strokes or screen; Stealing password files
◦ Social Engineering- one person posing as the actual
 Countermeasures
Encrypting data as it is stored and transmitted.
◦ By using network padding; Implementing strict access control mechanisms and data
classification, and Training personnel on proper procedures.
2. Integrity -Integrity of data is protected when the assurance of accuracy and reliability of information and
system is provided, and unauthorized modification is prevented.
 Threat sources: Viruses; Logic Bombs and Backdoors
 Countermeasures: Strict Access Control: Intrusion Detection; Hashing
3. Availability - ensures reliability and timely access to data and resources to authorized individuals.
 Threat sources; Device or software failure; Environmental issues like heat, cold, humidity, static
electricity, and contaminants can also affect system availability; Denial-of-service (DoS) attacks
 Countermeasures: Maintaining backups to replace the failed system; IDS to monitor the network traffic
and host system activities; Use of certain firewall and router configurations
Policies
 A security policy is an overall general statement produced by senior management (or a selected policy
board or committee) that dictates what role security plays within the organization.

Types of Policies
 Regulatory: This type of policy ensures that the organization is following standards set by specific
industry regulations. This policy type is very detailed and specific to a type of industry.
 Advisory: This type of policy strongly advises employees regarding which types of behaviors and
activities should and should not take place within the organization. It also outlines possible ramifications
if employees do not comply with the established behaviors and activities.
 Informative: It is not enforceable but rather it is to teach individuals about specific issues relevant to
the company. It could explain how the company interacts with partners, the company's goals and
mission, and a general reporting structure in different situations.

Information Risk Management

Information risk management (IRM) is the process of identifying and assessing risk, realizing the limitations in
reducing it to an acceptable level, and implementing the right mechanisms to maintain that level.

Categories of Risks
1. Physical damage- Fire, water, vandalism, power loss, and natural disasters
2. Human interaction- Accidental or intentional action or inaction that can disrupt productivity
3. Equipment malfunction- Failure of systems and peripheral devices
4. Inside and outside attacks- Hacking, cracking, and attacking
5. Misuse of data- Sharing trade secrets, fraud, espionage, and theft
6. Loss of data- Intentional or unintentional loss of information through destructive means
7. Application error- Computation errors, input errors, and buffer overflows
 National College of Business and Arts
Student: Marie D. Odlos August 2018

Professor: Dr Erlinda Daquigan

Subject (Topic): Managerial Accounting (Information Security Systems, Project Risk Management and Effective Project Communication)

8. Social Status- Loss of Customer base and reputation

There are four basic ways of dealing with risks

1. Transfer it: If a company's total or residual risk is too high and it purchases an insurance then it is
transfer of risk to the insurance company
2. Reject it: If a company is in denial about its risk or ignore it, it is rejecting the risk.
3. Reduce it: If a company implements countermeasures, it is reducing the risk.
4. Accept it: If a company understands the risk and decides not to implement any kind of countermeasures
it is accepting the risk. And this is actually what all computer systems boil down to. There is no way to
mitigate the risk if the system is going to connect to the internet. Having only one user without any
networking with others computer systems is the closest you can ever get to not having any risks.
 Once given console access (sitting at the actual hardware device be it computer, server, router) there is
no security that can keep a skilled person from getting into that system. Not one. This is the "beginning
of knowledge" of computer system security. And increasing knowledge increases sorrow.

Risk Assessment/Analysis
 Risk analysis is a method of identifying vulnerabilities and threat and assessing the possible damage to
determine where to implement security safeguards

Why do Risk Analysis?

 To ensure that security is cost effective, relevant, timely, and responsive to threat.
 To provide a cost/benefit comparison, this compares the annualized cost of safeguards to the potential
cost of loss. Help integrate the security program objectives with the company's business objectives and
requirements. To provide an economic balance between the impact of the threat and the cost of the
countermeasure.

Identifying Assets and Their Values

 Kinds of assets
◦ Tangible: measurable - computers, facilities, supplies
◦ Intangible: immeasurable, difficult to assess - reputation, intellectual property.
 Factors to be considered during assessing the value of information and assets.
◦ Cost to acquire or develop the assets; Cost to maintain and protect the assets; Value of the
asset to owners and users; Value of the asset to adversaries; Value of intellectual property that
went into developing the information; Price others are willing to pay for the asset; Cost to
replace the asset if lost; Operational and production activities that are affected if the asset is
unavailable; Liability issues if the asset is compromised; Usefulness and role of the asset in the
organization
 Need for determining the value of assets
◦ To perform effective cost/benefit analyses
◦ To select specific countermeasures and safeguards
◦ To determine the level of insurance coverage to purchase
◦ To understand what exactly is at risk
◦ To conform to due care and comply with legal and regulatory

Project Communications Management

Communication: The act or process of using words, sounds, signs, or behaviours to express or exchange
information or to express your ideas, thoughts, feelings, etc., to someone else

Communication in Project Management

 is exchanging of information from one point of the project to the other point in an efficient manner.
 Communication is referred to as “Project—Life Blood” as everything in a project is based on how
efficiently we communicate. It is the center of all management processes. The success of a project
largely depends on the efficiency of its communication network.
 National College of Business and Arts
Student: Marie D. Odlos August 2018

Professor: Dr Erlinda Daquigan

Subject (Topic): Managerial Accounting (Information Security Systems, Project Risk Management and Effective Project Communication)

Understanding the Communications Process

 Sender: initiates the communication
 Encoder: The device that encodes the message to be sent.
 Medium: device or technology to transport the message between the encoder and the decoder.
 Decoder: That device that decodes the message to be received.
 Receiver: The person who receives the communication finally. The receiver may interpret the
information, make a comment, and send it back to the sender.
 Feedback: The communication may be disrupted by noise and misinterpret the message

Project Communications Management Processes

1. Planning communications management: Determining the information and communications needs of the
stakeholders
2. Managing communications: Creating, distributing, storing, retrieving, and disposing of project
communications based on the communications management plan
3. Controlling communications: Monitoring and controlling project communications to ensure that
stakeholder communication needs are met
4. Administrative closure: generating, gathering, and disseminating information to formalize phase or project
completion

Determining the Number of Communications Channels

 As the number of people involved increases, the complexity of communications increases because there
are more communications channels or pathways through which people can communicate.
 Number of communications channels = n(n-1) 2
where n is the number of people involved

Figure 10-2. The Impact of the Number of People on Communications Channels

Classifications for Communication Methods

 Interactive communication: Two or more people interact to exchange information via meetings, phone
calls, or video conferencing. Most effective way to ensure common understanding
 Push communication: Information is sent or pushed to recipients without their request via reports, e-
mails, faxes, voice mails, and other means. Ensures that the information is distributed, but does not
ensure that it was received or understood
 Pull communication: Information is sent to recipients at their request via Web sites, bulletin boards, e-
learning, knowledge repositories like blogs, and other means

Reporting Performance
Performance reporting keeps stakeholders informed about how resources are being used to achieve project
objectives
◦ Status reports describe where the project stands at a specific point in time
◦ Progress reports describe what the project team has accomplished during a certain period of
time
◦ Forecasts predict future project status and progress based on past information and trends
BEATRIZ B. RESENTE DR. ERLINDA DAQUIGAN
MANAGERIAL ACCTG FRIDAY CLASS (6:00-9:30PM)

➢ SOME ADMINISTRATIVE AND SPECIAL ASPECTS OF THE CONTROLLER’S DEPARTMENT

CONTROLLERSHIP vs COMPTROLLERSHIP – The controller and comptroller titles refer to the same
position, which is the person responsible for all accounting operations of a business. The controller title
is more frequently found in for-profit businesses, while the comptroller title is more commonly found in
governmental and non-profit organizations.

ADMINISTRATIVE – manage controllership staff, development programs

SPECIAL ASPECTS:

1. General Accounting – Recording, Tax related, Bank recon etc

2. Project Accounting & Monitoring
3. Budgeting, Financial Planning & Forecasting
4. Compilation of records for FS
5. Answers queries during audit
6. Implementation of process & policies for effective cashflow / financial health of
company.

➢ FINANCIAL PLANNING AND ANALYSIS FOR ACQUISITIONS, MERGERS & DIVESTMENTS

A merger is the combination of two companies into one by either closing the old entities into one new
entity or by one company absorbing the other. In other words, two or more companies are consolidated
into one company.

Acquisition is an act of purchase of one company by another.

Synergy the interaction or cooperation of two or more organizations, substances, or other agents to
produce a combined effect greater than the sum of their separate effects. (sample: A = 100, B = 100,
when merged, AB = 250)

5 common types of Merger-Acquisition

1. Conglomerate - merger between 2 firms that are involved in totally unrelated business
activities.
2 types of conglomerate merger :
Pure – involve firms with nothing in common
Mixed – firms that are looking for product / market extensions

Example : Walt Disney merged with American Broadcasting Company

2. Horizontal – merge between companies in the same industry, same space, often competitors
offering same good / service. The goal of a horizontal merger is to create new, larger
organization with more market share and reduce cost.

Example: Coca-Cola merged with Pepsi

3. Market Expansion Mergers – between two companies that deals in the same products but in
separate markets. Its main purpose is to make sure that the merging companies can get access
to a bigger market and ensures a bigger client.

Example: Shoe maker from Philippines and from Japan, merge for the expansion of their market
BEATRIZ B. RESENTE DR. ERLINDA DAQUIGAN
MANAGERIAL ACCTG FRIDAY CLASS (6:00-9:30PM)

4. Product extension mergers – between two business organizations that deal in products that are
related to each other and operate in the same market. It allows the merging companies to group
together their products and get access to a bigger set of consumers, to ensure higher profits.

Example:

Mobilink Telecom Inc. (product designs meant for handsets) merged with Broadcom
(manufacturing Bluetooth personal area network hardware systems and chips-Wirelass LAN)

5. Vertical Merger – between two companies producing different goods and services for one
specific finished product. Often logic behind the merger is to increase synergies created by
merging firms that would be more efficient operating as one.

Example:

An automobile company joining with a parts supplier. They may not compete but exist in the
same supply chain.

PROS & CONS OF A MERGER

PROS

1. It adds more value to the combined entity than either individual company can produce on
its own.
2. It opens up new markets for both companies.
3. It is a cost-effective method to fuel expansion.
4. It can create multiple growth opportunities.

CONS

1. It creates distress within the employee base of each organization.

2. It may increase the amount of debt that is owed.
3. There can be differences in corporate culture that are not easy to consolidate.
4. It isn’t a one person decision most of the time.

Divestment also known as divestiture, is the opposite of an investment, and it is the process of selling an
asset for either financial, social or political goals. Assets that can be divested include a subsidiary,
business department, real estate, equipment and other property.

REASONS FOR DIVESTMENT:

- Companies may own different business units that operate in different industries that can be
very distracting for their management teams.
- Divesting a nonessential business unit can free up time for a parent company's
management to focus on its core operations and competencies.
- companies divest their assets to obtain funds, shed an underperforming subsidiary,
respond to regulatory action and realize value through a break-up.
 National College of Business and Arts - Cubao
Managerial Accounting

“Productivity Improvements: Reengineering”

“World Class Accounting System”

Submitted by:

Sena, Sarah Jane D.

Submitted to:

Dr. Erlinda Daquigan

September 7, 2018

SarahJaneSENA/Managerial Accounting 1
BUSINESS PROCESS REENGINEERING (BPR) – is the fundamental
rethinking and radical redesign of workflow and processes to achieve dramatic
improvements in critical measures of performance, such as Cost, Quality, Service
and Speed.

REASONS FOR REENGINEERING

1. Customers – Demanding (expect us to know everything, to make the right
decisions, to do it right now, to do with less resources, to make no mistakes),
sophistication, changing needs;
2. Competition – Local/Global
3. Change – Technology, Customer preferences
To integrate people, technology & organizational culture to respond to rapidly
changing technical & business environment and customer’s needs to achieve
BIG performance gains.

METHOD STUDY QUESTIONS FOR PROCESS ANALYSIS

1. What – does the operation need? Operations are necessary? Can some
operations be eliminated, combined, simplified?
2. Who – is performing the job? Can the operation be redesigned to use less
skill or less labor? Can operations be combined to enrich jobs?
3. Where – is each operation conducted? Can layout be improved?
4. When – is each operation performed? Is there excessive delay or storage?
Are some operations creating bottlenecks?
5. How – is the operation done? Can better methods, procedures, or equipment
be used?

BENEFITS OF REENGINEERING
1. Eliminates waste, and obsolete or inefficient process
2. Significant reduction in cost and time
3. Revolutionary improvements in many business processes as measured by
quality and customer service
4. Increasing the competency of both top and low-level companies

GOALS OF BPR
1. Customer Friendliness
• Meeting customer requirements closely
• Providing convenience
2. Effectiveness
• Outcome-based approach
• Gaining loyalty of customers
• Image and branding
3. Efficiency
• Cost
• Time
• Effort

SarahJaneSENA/Managerial Accounting 2
7 Basic Principles of BPR
1. Organize around outcomes, not tasks.
2. Identify all the processes in an organization and prioritize them in order of
redesign urgency.
3. Integrate information processing work into the real work that produces the
information.
4. Treat geographically dispersed resources as though they were centralized.
5. Link parallel activities in the workflow instead of just integrating their results.
6. Put the decision point where the work is performed and build control into the
process.
7. Capture information once and at the source.

4 STEPS IN BPR
1. Understanding the current process – understand the existing process and
its shortfalls and improvement areas to be redesigned. Activity and process
models are documented. The amount and cost of each activity is calculated.
• “As is” study – mapping current processes
• Analysis of Root causes for inefficiencies
• Identifications of problems, issues
2. Inventing a NEW process (‘to be’ process) - to produce one or more
alternatives to the current situation that satisfies strategic goals of the
enterprise.
• Survey of best practices
• Consultation of stakeholders
3. Constructing the NEW process
• Bringing in NEW laws and Rules
• Adopting disruptive technologies
4. Selling the NEW way of functioning
• Change management
• Communication strategy

WORLD CLASS ACCOUNTING SYSTEM

ACCOUNTING SYSTEM
A sub-system of the Management Information System.
An orderly arrangement of procedures, personnel, written records, equipment and
devices used for the systematic or organized collection, processing and reporting of
financial and other information essential to the users and effective conduct and
evaluation of the activities or transactions of a business enterprise.

SarahJaneSENA/Managerial Accounting 3
SAP Accounting Software

Each enterprise is different and may call for a specific Accounting Software solution
that will be adjusted to their business size, type of clients and employees and even
individual niche they deal with. It's not wise to count on locating an ideal software
that is going to work for each company regardless of their background is.

Modules of the SAP accounting software include accounting, reporting, accounts

receivable management and others. The increased efficiency allows easy access to
data and enables managers to make better business decisions.

Keeping track of what goes on in a company is difficult and time consuming

especially if done manually. With SAP accounting software, the time and effort spent
on manual tasks can now be channeled to more analytical activities that would help
the business strategically.

Aside from this, SAP accounting software also allows a company’s customers to
connect to it and place their orders through the system. Thus, the orders are
processed faster and are insulated from external factors like human error and
delays.

SAP accounting software is easily learned by company staff especially those with
accounting and information technology backgrounds. In the beginning, SAP/vendor
representatives will implement the software, adapt it to the company’s specific needs
and train personnel on its use. SAP accounting software also needs to be updated
regularly to higher versions. Consequently, the IT infrastructure of the company
needs to be able to support these data/ capacity requirements and must also be
upgraded from time to time.

SarahJaneSENA/Managerial Accounting 4
All of these will ultimately redound to the good of the company. The objective of SAP
accounting software is to enable the company to be more efficient, more flexible, and
more responsive to the needs of their own internal and external clients. SAP
accounting software is a valuable tool to achieve these objectives.

No longer is accounting a tedious, repetitive aspect of operations. SAP accounting

system frees up more time so that managers and employees can use their time and
talents to analyze trends, grow the business and make sure they deliver the best
product/ service to their customers.

SAP is the world’s leading provider of business software – enterprise resource

planning, business intelligence, and related applications and services that help
companies of all sizes and in more than 25 industries run better. The main
advantages and disadvantages are:

SAP Advantages:
1. Integration. Integration can be the highest benefit of them all. The only real
project aims for implementing ERP is reducing data redudancy and redudant data
entry. If this is set as a goal, to automate inventory posting to G/L, then it might be a
successful project. Those companies where integration is not so important or even
dangerous, tend to have a hard time with ERP. ERP does not improve the individual
efficiency of users, so if they expect it, it will be a big disappointment. ERP improves
the cooperation of users.
2. Efficiency. Generally, ERP software focuses on integration and tend to not care
about the daily needs of people. I think individual efficiency can suffer by
implementing ERP. the big question with ERP is whether the benefit of integration
and cooperation can make up for the loss in personal efficiency or not.
3. Cost reduction. It reduces cost only if the company took accounting and reporting
seriously even before implementation and had put a lot of manual effort in it. If they
didn’t care about it, if they just did some simple accounting to fill mandatory
statements and if internal reporting did not exists of has not been fincancially-
oriented, then no cost is reduced.
4. Less personnel. Same as above. Less reporting or accounting personnel, but
more sales assistants etc.
5. Accuracy. No. People are accurate, not software. What ERP does is makes the
lives of inaccurate people or organization a complete hell and maybe forces them to
be accurate (which means hiring more people or distributing work better), or it falls.

Disadvantages:
1. Expensive. This entails software, hardware, implementation, consultants, training,
etc. Or you can hire a programmer or two as an employee and only buy business
consulting from an outside source, do all customization and end-user training inside.
That can be cost-effective.
2. Not very flexible. It depends. SAP can be configured to almost anything. In
Navision one can develop almost anything in days. Other software may not be
flexible.

SarahJaneSENA/Managerial Accounting 5
 NATIONAL COLLEGE OF BUSINESS AND ARTS
964 AURORA BLVD., CUBAO, QUEZON CITY
GRADUATE SCHOOL
MASTERS OF BUSINESS AND ADMINISTRATION

MANAGERIAL ACCOUTING
ACCOUTING BEST PRACTICES and
OUTSOURCING THE ACCOUNTING FUNCTIONS
By: Ms. Geraldine M. Caasi
Professor: Dr. Erlinda Daquigan

Soures:
https://doeren.com/9-best-accounting-practices-small-business/
Consider the Benefits: Outsourcing the Accounting Function, www.scsconsults.com
ACCOUNTING BEST PRACTICES

CASH MANAGEMENT

- Perform a daily reconciliation or review of cash balances by using online banking

capabilities and booking adjustments into your system in real time.
- Maintain a cash worksheet to monitor cash balances effectively and in a timely
manner.
- Conduct deposits and transfers of cash on a daily basis.
- Streamline your line of credit if you have one. If cash is limited, consider
renegotiating terms of financing agreements to affordable monthly installments or
evaluate if a sweep account would work for your organization.
- Evaluate cash-flow projections to help determine what level of cash and tracking is
needed for your organization.
- Explore ways to shorten your overall cash cycle, such as matching timing of payables
and invoicing, reviewing invoice billings timing and method of delivery (email or
automated invoicing, performing consistent collection efforts and evaluating payroll
scheduled.
ACCOUNTS RECEIVABLE

- Measure your accounts receivable performance and identify areas for improvement
by establishing a monitoring key performance indicator.
o Establishing payment protocols for large orders or overseas customers (using
efficient delivery method to send invoices and ensure regularly (weekly basis)
o Adhering to a through collections policy and documenting payment history for
each of your clients.
INVENTORY

- Cycle counts versus wall-to-wall counts.

- Month-end cutoff procedures.
- Allowances for obsolescence/physical adjustments – make sure it is written off by the
end of the year for tax, if appropriate.
- Analysis days in inventory – to identify slow moving items.
- Un-reconciled receipts/received are not invoiced.
FIXED ASSETS

- Establish a capitalization threshold for items over a set amount.

- Record them individually, not as a group.
- Maintain a detailed description of assets.
- Work with your operations teams on cost/benefit assessments before purchasing new
equipment.
- Analyze leasing versus buying major purchases.
- Review your asset listing to ensure assets exists and are in use.

1
 ACCOUNTS PAYABLE

- Strengthen your purchasing approval process by defining thresholds to control

purchasing.
- Have a strict cutoff at month-end policy - create accounting calendar with set dates
that communicates cutoffs.
- Limit access to setup of new vendors – evaluate reducing the supplier base.
- Seek opportunities to negotiate better pricing form vendors (negotiating volume
discounts).
- Review sub-ledgers for items such as duplicate check numbers/payments and
miscellaneous accounts.
- Electronically store supporting information.
- Ensure all invoices are properly approved prior to payment. Verbally confirm with
approver for large electronic payments to prevent fraudulent activity.
BILL AND PAY

- Incorporate a bill-paying approval process that requires a manager approval, plus the
date, account coded to and invoice/bill amount.
- If using company credit cards create separate expense reports for charges on company
credit cards versus reimbursable expenses, set credit card limits and get them all on
one monthly statement.
NOTES PAYABLE

- Consider providing the person who posts the payment with an amortization schedule,
analyzing agreements to understand covenants and tracking them regularly, and
preparing borrowing base reports in advance.
ACCRUALS

- To close early, estimate accrual by using last payroll of prior month.

- Consider adjusting your pay cycles to limit the need for an accrual (ending on last
day of month).
- For all accruals, use reversing entries if your system has them.
MONTH-END

- Reconcile large accounts weekly or daily to reduce workload at month or year end
and identify issues timely.
- Use the accounting system cash reconciliation.
- Download bank transaction data directly into accounting system.
- Use a month-end close checklist to eliminate errors.
- Run a report of all journal entries and attach support.
- Print comparative financial statements and review variances for journal entries
needed.

Source: https://doeren.com/9-best-accounting-practices-small-business/

2
OUTSOURCING THE ACCOUTING FUNCTIONS

- Accounting is one of the most important but tedious functions in small and medium
enterprises. Hiring new employees for this may be the basic solution. However, it
eats up time and resources that could be diverted to revenue generating activities.
Out sourcing this function is another way to solve this dilemma. It lets you acquire
the skills of experts without the heavy costs and time constraints.
MAJOR BENEFITS OF OUTSOURCING
COST SAVINGS

- When you outsource you do not have the cost of a full time employee. You only pay
for the hours that are required to perform the job.
EXPERTISE

- They have employees that have expertise in each area of accounting and payroll since
they are investing merely and focus only on personnel that are expert in the field.
FLEXIBILITY

- Companies that perform outsourced accounting functions tend to be flexible in the set
up and schedule for their customers.
FOCUS

- Managers will focus more on business opportunities rather than manage the internal
accounting processes.
TEAMWORK

- When a company makes the decision to outsource their accounting function, they are
actually extending their team to include additional professionals. The right
outsourcing firm can be viewed as an extension of the company’s resources.
GUIDANCE
- Companies can take advantage of that resource and often ask for guidance in several
aspects of accounting and finance.

Source: Consider the Benefits: Outsourcing the Accounting Function, www.scsconsults.com