Principles of Accounting, Volume 2: Managerial

Accounting
Chapter 1 ACCOUNTING AS A TOOL FOR MANAGERS
PowerPoint Image Slideshow
Chapter Outline

• 1.1 Define Managerial Accounting and Identify the Three Primary

Responsibilities of Management
• 1.2 Distinguish between Financial and Managerial Accounting
• 1.3 Explain the Primary Roles and Skills Required of Managerial
Accountants
• 1.4 Describe the Role of the Institute of Management Accountants
and the Use of Ethical Standards
• 1.5 Describe Trends in Today’s Business Environment and Analyze
Their Impact on Accounting
Module 1.1 Define Managerial Accounting and Identify the
Three Primary Responsibilities of Management

Managerial accounting is the process that allows decision makers to

set and evaluate business goals by determining what information they
need to make a particular decision and how to analyze and
communicate this information.
Figure 1.2

One of the first items on a new

company’s agenda is the creation
of a mission statement. A mission
statement is a short statement of a
company’s purpose and focus. This
statement should be broad enough
that it will encompass future
growth and changes of the
company. Google’s mission
statement is “Our mission is to
organize the world’s information
and make it universally accessible
and useful.”

The Process of Adhering to the Mission Statement. (attribution: Copyright Rice

University, OpenStax, under CC-BY-NC-SA 4.0 license)
Three Primary Responsibilities of Management

• Planning is the process of setting goals, or what the company expects

to accomplish over time, and objectives, or the targets that need to
be met in order to meet the company’s goals.
• Controlling involves the monitoring of the planning objectives that
were put into place.
• Evaluating, also called assessing or analyzing, involves comparing
actual results against expected results, and it can occur at the
product, department, division, and company levels.
Your Turn: Evaluating On-Campus versus Off-Campus Living

The principal purpose of managerial accounting is to deliver

information useful for management decision-making. Many of the
techniques used in managerial accounting are useful for decisions in
your everyday life. In choosing whether to live on campus or off
campus, how might you use planning, controlling, and evaluating in
your decision-making process? What types of financial and nonfinancial
information might you need?
Module 1.2 Distinguish between Financial and Managerial Accounting

Financial and Managerial Accounting Comparative:

Figure 1.4
Comparing Reports between Financial and Managerial Accounting. (attribution: Copyright Rice University, OpenStax, under
CC-BY-NC-SA 4.0 license)
 Figure 1.3

This type of analysis is

an example of one of
the many functions of
managerial accounting:
tracking costs. This helps
the company determine
which products to
produce, how many of
each to produce and the
price to charge.

Material Cost Analysis. Daryn’s Dairy materials cost comparison analysis between best-selling standard vanilla ice cream and
Very Berry Biscotti, a limited-edition specialty ice cream. (attribution: Copyright Rice University, OpenStax, CC-BY-NC-SA 4.0
license)
Sample Exercise

EA5. Taylor Speedy has prepared the following list of statements about
managerial accounting, financial accounting, and the functions of
management. Identify each statement as true or false.
A. Financial accounting centers on providing information to internal users.
B. Staff positions are directly involved in the company’s primary revenue-
generating activities.
C. Preparation of budgets is part of financial accounting.
D. Managerial accounting applies only to merchandising and
manufacturing companies.
E. Both managerial accounting and financial accounting deal with many of
the same economic events.
Your Turn: Logistics Analyst
As a corporate accountant, it is very important to understand both financial and managerial
aspects of the company and industry in which you are working. In order to assist management in
their roles of planning, controlling, and evaluating, an accountant needs to be aware not only of
GAAP but also of the products or services offered by the company, the processes by which those
products or services are produced, and pertinent facts about suppliers, customers, and
competitors. Not having this knowledge not only makes it more difficult for the corporate or
managerial accountant to perform any assigned duties, but there is also an ethical responsibility
to be knowledgeable in order to offer assistance, analysis, or recommendations to management
or customers.
Assume you have been hired by Triumph Motorcycles as a new logistics analyst. In this position,
you will carry out such tasks as obtaining and analyzing information about your company’s goods
or services; monitoring the production, service, and information processes and flow; and looking
for ways to improve efficiency of operations.
How would you go about obtaining the knowledge and understanding you will need to work for
this company? How would financial and managerial accounting concepts help you in
understanding the company and the industry as a whole?
Module 1.3 Explain the Primary Roles and Skills Required of
Managerial Accountants

Because managerial accountants play a different role than financial

accountants, it is important to see where managerial accountants fit
into the organizational structure and the types of jobs and certifications
that they may obtain.
 Figure 1.7

Sample Organizational Chart. (attribution: Copyright Rice University, OpenStax, under CC-BY-NCSA 4.0 license)
Figure 1.8

There are many jobs that

an accountant, either
financial or managerial,
can obtain upon
graduation. These
positions open the door
to many upper-level
management
opportunities as shown
in this chart.

Accounting Position Salaries. Salaries are shown for some entry-level and advanced-level jobs available with an accounting
degree. (attribution: Copyright Rice University, OpenStax, under CC-BY-NC-SA 4.0 license)
Common Accounting Certifications

• Certified Public Accountant (CPA)

• Certified Management Accountant (CMA)
• Certified Financial Analyst (CFA)
• Certified Internal Auditor (CIA) 
• Enrolled Agent (EA)
• Certified Fraud Examiner (CFE)
• Certified Government Auditing Professional (CGAP) 
Module 1.4 Describe the Role of the Institute of Management
Accountants and the Use of Ethical Standards

The Institute of Management Accountants (IMA), the professional

organization for management accountants, provides research,
education, a means of knowledge sharing, and practice development to
its members.
• The IMA issues the Certified Management Accountant (CMA)
certification. The CMA exam covers essential managerial accounting
topics, as well as topics on economics and finance. 
• The IMA also develops standards and principles to help management
accountants deal with ethical challenges.
• The IMA has its own Statement of Ethical Professional Practice for its
members.
Ethics Legislation

In response to several corporate scandals, the United States Congress

passed the Sarbanes-Oxley Act of 2002 (SOX), also known as the
“public company accounting reform.”
• It is a federal law that was a far-reaching reform of business practices.
• Its focus is primarily on public accounting firms that act as auditors of
publicly traded corporations.
• The act intended to protect investors by enhancing the accuracy and
reliability of corporate financial statements and disclosures.
• Thousands of corporations now must confirm that their accounting
processes comply with SOX. 
Module 1.5 Describe Trends in Today’s Business Environment and
Analyze Their Impact on Accounting

• Enterprise Resource Planning (ERP) helps companies streamline their

operations and helps management respond quickly to change.
Although they are expensive, these systems help alleviate the
complications that arise from business systems that do not coordinate
with one another.
• Automation is a method of using systems, such as computers or
robots, to operate different processes and machinery to improve
efficiencies and lower direct labor costs. Companies use automation
to remove the complex, superfluous stages from a process in order to
streamline the practice.
• Outsourcing is hiring workers outside of the company who perform
their tasks inside or outside of the country.
Figure 1.11

Eight Primary Components of Enterprise Resource Planning (ERP). The diagram shows the role of ERP in streamlining a
business by coordinating the various components of that business. (attribution: Copyright Rice University, OpenStax, under
CC-BY-NC-SA 4.0 license)
Other Trends
• Lean Production
• A lean business model is one in which a company strives to eliminate waste in its
products, services, and processes, while still fulfilling the company’s mission.
• Balanced Scorecard
• The balanced scorecard (BSC) approach uses both financial and nonfinancial
measures in evaluating all attributes of the organization’s procedures. 
• Globalization
• Globalization is the development of business through international influence or
extending social and cultural aspects around the world.
• Social Responsibility and Sustainability
• With social responsibility and sustainability, companies make decisions that “meet
the needs of the present without compromising the needs of future generations.” 1
1. “Sustainable Development.” General Assembly of the United Nations.
http://www.un.org/en/ga/president/65/issues/sustdev.shtml
Figure 1.12

Kaizen Board Showing Kaizen Process and Some Related Tactics. (credit left: modification of “Woman Standing in Front of
Sitting People” by “rawpixel.com”/Pexels, Pexels license / Public Domain; right: modification of “A few kaizen tactics” by Sacha
Chua/Flickr, CC BY 2.0)
Your Turn: Zaley’s Machining Division
Zaley is an aerospace manufacturing firm in the southwest United States. They manufacture several
products used in the aviation and aerospace industry. The company has been steadily growing over
the past ten years in both sales and personnel. The engineering and design team uses computerized
aided drafting (CAD) to design the various products that are produced by the machining division.
The machining division recently implemented significant technological improvements by installing an
advanced technique using hard-metal and aluminum high-speed machining. The following managers
are involved with the machining division:
• Alex Freedman, technical specialist (supervises all computer programs)
• Emma Vlovski, sales manager (supervises all sales agents)
• Kayla McClaughley, cost accounting director (supervises all cost accountants)
• Mwangi Kori, lead test engineer (oversees all new-product testing and design)
• Torek Sanchez, production director (supervises all manufacturing employees)

Each of these managers needs information to make decisions needed to carry out the respective jobs.
Think about what might be involved in the job of each of these managers and the types of decisions
they may be required to make in order to meet the goals of the company. What information would be
needed by each of the managers?
Your Turn: Daryn’s Dairy
Suppose you have been hired by Daryn’s Dairy as a market analyst. Your first assignment is to
evaluate the sales of various standard and specialty ice creams within the Midwest region where
Daryn’s Dairy operates. You also need to determine the best-selling flavors of ice cream in other
regions of the United States as well as the selling patterns of the flavors. For example, do some
flavors sell better than others at different times of the year, or are some top sellers sold as
limited-edition flavors? Remember that one of the strategic goals of the company is to increase
market share, and the first step in meeting this goal is to sell their product in 10 percent more
stores within their current market, so your research will help upper-level management carry out
the company’s goals. Where would you gather the information? What type of information would
you need? Where would you find this information? How would the company determine the
impact of this type of change on the business? If implemented, what information would you
need to assess the success of the plan?
Summary
• The purpose of managerial accounting is to supply financial and nonfinancial
information to the organization’s management and other internal decision
makers.
• Primary differences between managerial accounting and financial accounting
are: users, types of reports produced, frequency of producing the reports,
purpose of the information produced, focus of the reporting information,
nature of the original information used to produce the reports, and
verification of the data used to create the reports.
• Management accountants work with individuals at all levels of an organization
from the CEO to the shop floor workers. Skills for managerial accountants
include commercial awareness, collaboration, effective communication skills,
strong technology talents, extensive analytical abilities, and elevated ethical
values.
Summary (continued)
• The Institute of Management Accountants (IMA), the professional
organization for management accountants, issues the Certified
Management Accountant (CMA) certification and has its own
Statement of Ethical Professional Practice for its members
• Changes in business trends such as technological trends, new business
practices such as lean practices, the use of evaluation tools such as
balanced scorecards, globalization, and the desire for businesses to
practice social responsibility and sustainability shape not only how
businesses make decisions but how managerial accounting has evolved
and will continue to evolve to meet the needs of organizations.
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