We begin by examining the differences between financial and managerial accounting. The primary difference pertains to the audience: who will read the reports? Financial accounting information is geared toward external users, while managerial accounting is for internal users. Managerial accounting is integral to making operational and strategic decisions.
In this unit, we examine the manufacturing process and related financial accounting transactions, so you can differentiate between product costs
and selling and administrative costs. The flow of costs in cost accounting mirrors the physical flow of the inventory. For example, a pizza parlor first buys the direct materials they put on their pizzas (cheese, tomatoes, and pepperoni). When a customer
orders a pizza, the restaurant assembles the direct materials, bakes (work in process) and completes a pizza (finished goods), and delivers it to the customer.
Completing this unit should take you approximately 3 hours.
Read section 1.2. Good managers are always planning for the future and assessing the present. The functions that enable management to continually plan for the future and assess implementation are called planning and control. Planning is the process of establishing goals and communicating these goals to employees of the organization. The control function is the process of evaluating whether the organization’s plans were implemented effectively.
Read section 1.4. Mark Twain told us that there are three types of lies, “lies, damned lies and statistics.” Management accountants produce many statistics! As a management accountant you need to be aware of ethical issues and avoid practices that mislead and misdirect those who will use your information.
Selection of a computer system for a company is more than a software or hardware decision—it is a complex problem that usually requires scrupulous research and a full rethinking of the organization's culture and reporting relationships. Today, most companies have a computerized financial system that creates financial and management accounting reports. Read more in section 1.5.
Read section 1.6. Classifying costs and revenue correctly is critical to consistent financial reporting. A consistent report has uniform meaning within the company. In this section you will learn some of the basic terminology used to classify costs. This section of the textbook is important to your success in this course, so be sure to complete the exercises at the end of the section before you move on.
Costs are associated with, and accumulated in, broad accounts out of necessity. In section 1.7, you will learn how costs are assigned to those accounts and how those costs can "flow" through another cost account. Be sure to complete the exercises at the end of this section before you move on.
Companies who manufacture products report different accounts on their income statements than other types of companies, such as service or merchandising companies. In section 1.8, you will review the income statements of manufacturing companies.