Users of

Accounting Information

Internal managers…
use information for short-term planning
and controlling routine operations.
use information for making
nonroutine decisions and formulating
overall policies and long-range plans.

1-1
 Users of
Accounting Information

External parties: use information for

Investors making decisions
Government authorities about the company.

1-2
Management Accounting

What is Management Accounting?

It is the process of identifying, measuring,
accumulating, analyzing, preparing,
interpreting, and communicating
information that managers use to
fulfill organizational objectives.

1-3
Financial Accounting

What is Financial Accounting?

It refers to accounting information
developed for the use of external parties
such as stockholders, suppliers, banks,
and government regulatory agencies.

1-4
 Accounting Systems

An accounting system is a formal mechanism

for gathering, organizing, and communicating
information about an organization’s activities.

1-5
 Management Accounting
Functions

• Measuring of Economic Changes

• Provide management decision support
• Control
• Set Objectives

1-6
 Management Accounting Vs
Financial Accounting
• Primary Users
• Parameters
• Concern
• Orientation
• Time Span
• Reports

1-7
 Role of Management Accountant

• Financial Planning
• Evaluation of Performance
• Cost Management
• Record Maintenance
• Provide management Decision Support
• Product Pricing

1-8
 Limitation of Management
Accounting
• Limitations of Basic Record
• Management Accounting is only a tool
• Set-up Cost
• Difficult Change Management

1-9
 Cost Accounting

Cost Accounting is concerned with recording, classifying and

summarizing costs for determination of cost of products or
services, planning, controlling and reducing such costs and
furnishing of information to management for decision making

1 - 10
 Objectives

 Ascertainment of cost
 Cost control
 Measuring and improving performance
 Facilitate preparation of financial reports
 Basis for operating policies

1 - 11
 Cost Concepts

Cost
Cost is the amount of expenditure (actual
or notional) incurred on or attributable
to a given thing.

1 - 12
 Cost Concepts

Expense

It is the amount charged against revenue during a

particular period.

1 - 13
 Cost Concepts

Loss
Outflow of resources without any commensurate
benefit

1 - 14
 Cost Concepts

Cost Unit

Cost Centre
Production Cost Centre
Process Cost Centre
Service Cost Centre

Profit centre

Investment centre
1 - 15
 Elements of Costs

 Material
 Labour
 Expenses

1 - 16
 Types of Costs

 Direct and Indirect Costs

 Fixed, Semi-variable and Variable Costs
 Differential and Incremental Costs
 Controllable and Uncontrollable Costs
 Relevant and Irrelevant Costs
 Product and Period Costs
 Budgeted and Standard Costs
 Sunk Costs
 Out of Pocket Costs
 Opportunity Costs
1 - 17
 Cost Sheet
Direct Materials
Direct Labour
Direct Expenses
------------------
Prime Cost
Factory Overheads
--------------------
Works Cost
Administrative Exp.
-------------------
Cost of Production
Sales & Distribution Exp.
------------------
Total Cost (Cost of Sales) 1 - 18