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INTRODUCTION TO
MA NA GEMENT A C C O UNT I NG
16 T H EDI T I O NC H A R L E S T . H O R N G R E N , E T A L
CH 1.Managerial Acounting, the BusinessOrganization, and Professional Ethics
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Management Accounting Definition
Management Accounting is the branch of accountingthat roduces information for managers !ithin an
organization."t is the rocess of identif#ing, measuring,
accumulating, anal#zing, rearing, interreting,and communicating information that hels
managers fulfill organizational ob$ecti%es.
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&inancial Accounting Definition
&inancial Accounting is the branch of accountingthat de%elos information for e'ternal decision
ma(ers such as stoc(holders, suliers, ban(s, andgo%ernment regulator# agencies.
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Distinction Bet!een Managementand &inancial Accounting
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)oles of Accounting "nformation
Accounting System is a formal
mechanism for gathering, organizing, andcommunicating information about anorganization*s acti%ities.
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Accounting and Decision Ma(ing
Decision Ma(ing+ choosing among alternati%e coursesof action designed to achie%e some ob$ecti%es.
sers of Accounting "nformation+"nternal Managers !ho use the information for da#-
to-da# oerating decisions and for long-rangestrategic decisions.
E'ternal arties, such as in%estors and go%ernmentauthorities, !ho use the information for ma(ingdecisions about the coman#.
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)oles of Accounting "nformation
"t can hel managers to ans!er three t#es ofuestions+
1. Scoec!" #uestions. /o that data are
accumulated and classified.$. Attention%"iecting #uestions, focused on
oerating, imerfections, inefficiencies, andoortunities.
&. 'o()em%so)*ing #uestions, in%ol%es a secialstud# to assess ossible courses of action andrecommends the best course to follo!.
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Essential Management Process
Planning 0hat ob$ecti%es does the organization !ant to achie%e
0hen and ho! the organization achie%e these ob$ecti%es
Controlling )efers to imlementing lans and using feedbac( to e%aluate
the attainment of ob$ecti%es.
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Management b# E'cetion
Concentrating more on areas that de%iate from the lan andless on areas that conform !ith lans and are resumed to berunning smooth#.
Budget A uantitati%e e'ression of a lan of action and an aid to coordinating
and imlementing the lan.
Performance )eorts
&eedbac( ro%ided b# comaring results !ith lans and b#highlighting %ariances.
2ariance De%iations from lans.
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Accounting &rame!or( 3e'. /tarbuc(s /tore4
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Performance )eort 3e'. Ma#fair /tarbuc(s /tore4
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"nfluences on Accounting /#stem
Accounting /tandard
"nternal Auditors
Management Audit
/arbanes-O'le# Act
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Cost-Benefit and Beha%ioral Considerations
5!o imortant ideas !hen designing accountings#stem+
5he cost benefit balance
0eighting estimated costs against robable benefits, the rimar#consideration in choosing among accounting s#stems andmethods.
Beha%ioral imlications5he accounting s#stem*s effect on the beha%ior, secificall# thedecisions, of managers.
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Panning and Control for P6C and the 2alue Chain
'o"uct Li+e Cyc)e 'LC- refers to the %ariousstages through !hich a roduct asses, fromconcetion and de%eloment to introduction into the
mar(et to maturation and, finall#, !ithdra!al fromthe mar(et.
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!)ue C/!in is the set of business functions oracti%ities that add %alue to the roducts or ser%ices ofan organization.
Panning and Control for P6C and the 2alue Chain
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Accounting*s Position in the Organization
0or( acti%ities of management accountants+Collecting and comiling information
Prearing standardized reorts
"nterreting and anal#zing information
Being in%ol%ed in decision ma(ing
Positions+
6ine managers
Directl# in%ol%ed !ith ma(ing and selling the organization*s roducts orser%ices.
/taff Managers Ad%isor# to the line managers. 5he# ha%e no authorit# o%er line managers, butthe# suort the line managers b# ro%iding information and ad%ice.
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Partial Organization Chart of A Manufacturing Coman#
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Chief &inancial Officer 3C&O45he to e'ecuti%e !ho deals !ith all finance and accountingissues in an organization. 5he dut# is o%ersees the accountingfunction.
)oles in &inancial &unctions+
5reasurer5he e'ecuti%e !ho is concerned mainl# !ith the coman#*sfinancial matters, such as raising and managing cash.
Controller5he accounting officer of an organization !ho deals mainl# !ithoerating matters, such as aiding management decision ma(ing.
Controller and 5reasurer &unctions
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Controller and 5reasurer &unctions
Controllershi Planning for control )eorting and "nterreting
E%aluating and Consulting 5a' Administration 7o%ernment )eorting Protection of Assets
Economic Araisal
5reasurershi Pro%ision of Caital "n%estor )elations
/hort-5erm &inancing Ban(ing and Custod# Credit Management and
Cash Collections
"n%estments )is( Management
3"nsuramce4
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Adatation to Change
Business trends recentl#+
1. /hift from a manufacturing-based to a ser%ice- based econom#
8. 7lobal cometition
9. Ad%ances in technolog#
:. Changes in business rocess management
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/er%ice /ector
Characteristics+
1. 6abor is a ma$or comonent of costs
8. Outut is usuall# difficult to measure9. /er%ice Organizations cannot store their ma$or
inuts and oututs
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Ad%ances in 5echnolog#
e-commerce
B8C 3business to consumers4
B8B 3business to business4E)P 3Enterrise )esource Planning4 /#stem
;B)6 e;tensible Business )eorting 6anguage
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Changes in Business Process Management
Business Process )eengineering
Comuter-Aided Design 3CAD4
Comuter-Aided Manufacturing 3CAM4
Comuter-"ntegrated Manufacturing 3C"M4 /#stem
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"mortance of Ethics
Practices need integrit#, since theinformation must correct and
accountable.
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Ethical Conduct for Professional Accountants
Ethic deals !ith human conduct in relation to !hat is morall# good
and bad, right and !rong. "t is the alication of %alues to decision ma(ing. "n the %alues, include honest#, fairness, resonsibilit#, resect,
and comassion.
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/tandards of Ethical Conduct
>eeds CPAs and CMAs
"MA /tatement of Ethical Professional Practices A code of conduct de%eloed b# the "nstitute of Management
Accountants, including cometence, confidentialit#, integrit#,and credibilit#.
Code of Conduct
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Ethical Dillemas
5o maintain high ethical standards, accountants andothers need to recognize situations that createressures for unet/ic!) (e/!*io.
/ome usual roblems in &inancial E'ecuti%e+1. Emhasize on short-term results
8. "gnoring the small stuff
9. Economic c#cles 3e'. Enron case4:. Accounting rules 3become more comle' and less
intuiti%e, ma(ing abuse of the rules harder toidentif#4