Companies use financial and managerial accounting methods to generate reports that serve the needs of their different audiences, which can be internal or external to the organization.
Review these definitions in Characteristics of Managerial Accounting. Table 1.1 provides a quick comparison of managerial and financial accounting.
Managers are required to constantly predict financial outcomes for their companies. After the accounting period is over, they should evaluate whether they successfully predicted what actually occurred, from a monetary perspective. For example, managers often create, present, and revise their budget, their financial predictor of anticipated revenues and expenses, throughout the planning, implementation, and reporting process.
Review these definitions and statements about strategic plans for publicly-traded companies in Planning and Control Functions Performed by Managers. Notice how Southwest Airlines lists four future initiatives in its accounting report in "Business in Action 1.1".
An effective organization delegates roles within its accounting, finance, and tax divisions.
Review these definitions in Key Finance and Accounting Personnel.
This typical organization chart illustrates the flow of reporting within an organization.
A Typical Organization Chart
Many professional and governmental organizations, and individual companies, provide their employees with guidance regarding ethical behavior and decision making. The Institute of Management Accountants (IMA) is a professional organization that provides guidance that its members can use when they face ethical dilemmas. Consider how you will respond to potential ethical conflicts in your career.
IMA Statement of Ethical Professional Practice.
Companies rely on computerized accounting applications to record, sort, analyze, and report financial information for internal and external users.
Companies require accurate and up-to-date information across the entire organization to make timely decisions. Companies have a lot to consider when they choose computer software and applications to manage their accounting processes, whether they are creating a basic spreadsheet or implementing a robust enterprise resource planning system.
Review these considerations in Computerized Accounting Systems.
The financial statements of manufacturing companies report two broadly-defined types of costs: manufacturing or non-manufacturing. Manufacturing costs, also called "product costs", include direct materials, direct labor, and overhead costs.
Non-manufacturing costs are also called period costs.
Accountants at manufacturing companies expense manufacturing and non-manufacturing costs at specific times.
Review these definitions in Cost Terminology. Tables 1.2 and 1.3 give examples of these types of costs.
Accountants report manufacturing costs in three types of inventory accounts on a balance sheet, depending on the level of completeness of the materials (raw materials, work in progress, and finished goods.
Accountants must use appropriate classification and reporting methods in manufacturing. For example, they include the total cost of goods sold in the company's income statement: after the finished goods have been sold, and their associated costs have been transferred from the income statement to the balance sheet.
Review these classification and reporting methods in How Product Costs Flow through Accounts.
The cost flow equation helps accountants calculate the costs of manufactured goods as these items move through the company's production process.
The cost flow equation helps companies prepare schedules for the raw materials placed in production, the cost of goods manufactured, and the cost of goods sold.
Income statements for merchandising and manufacturing companies are somewhat different.
Review these three primary income statements schedules in Income Statements for Manufacturing Companies. This figure presents the flow of costs in a manufacturing company.
Income Statement Schedules for Custom Furniture Company