Managerial Accounting Overview

5/5/2017 AccountingInformationSystemAIS
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Managerial Accounting
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What is 'Managerial Accounting' Loading the player...

Managerial accounting is the process of identifying, measuring, analyzing,
interpreting and communicating information for the pursuit of an
organization's goals. This branch of accounting is also known as cost
accounting.. The key difference between managerial and financial accounting
accounting
is managerial accounting information is aimed at helping managers within
the organization make decisions, while financial accounting is aimed at
providing information to parties outside the organization.
BREAKING DOWN 'Managerial Accounting'

Managerial accounting encompasses all fields of accounting aimed at
informing management of business operation metrics
metrics.. Managerial
accountants use information relating to the costs of products or services
purchased by the company. Budgets are also extensively used as a
quantitative expression of the business plan of operation. Individuals in managerial accounting
utilize performance reports to note deviations of actual results from budgets.
Margin Analysis
Managerial accounting handles margin analysis, the amount of profit or cash flow generated by the
sale from a specific product, customer, store or region. Margin analysis involves analyzing the
incremental benefit attained by increased production and flows into breakeven analysis. Breakeven
analysis involves calculating the contribution margin on the sales mix to determine the unit volume
at which the business gross sales equal total expenditures. This information calculated by
managerial accountants is useful for determining price points for products and services.
Constraint Analysis
Managerial accounting also manages constraints within a production line or sales process.
Managerial accountants determine where principle bottlenecks occur and calculate the impact of
these constraints on revenue, profit and cash flow.
Capital Budgeting
Managerial accounting involves utilizing information related to capital expenditure decisions.
Managerial accountants utilize standard capital budgeting metrics such as net present value and
internal rate of return to assist decision makers on whether to embark on capital-intensive projects
or purchases. Managerial accounting involves examining proposals, deciding if the products or
services are needed, and finding the appropriate way to finance the purchase. It also outlines
payback periods so management is able to anticipate future economic benefits and when they will
occur.
Trend Analysis/Forecasting
Managerial accounting involves reviewing the trendline for certain costs and investigating unusual
variances or deviations. This field of accounting also utilizes previous period information to
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calculate and project future financial information. This may include the use of historical pricing,
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sales volumes, geographical locations, customer tendencies or financial information.
Product Costing/Valuation
Administrative Accounting
Managerial accounting deals with determining the actual costs of products or services. Managerial
accountants calculate and allocate overhead charges to property assess the true expenses related to
Accounting
the production of a product. The overhead expenses may be allocated based on quantity of goods
produced or other drivers related to the production, such as square foot of the facility. In
conjunctionActivities
Batch-Level with overhead costs, managerial accountants use direct costs to properly assess the
cost of goods sold and inventory that may be in different stages of production.
Cost Accounting Trading Center

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Extended Normal Costing
Push Down Accounting
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Account Analysis
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The Accountant's Magazine - TAM
The financial reporting of factors that influence decision making, operational control and
managerial planning. Administrative accounting focuses on management planning and control to
accomplish the company's administrative goals.
BREAKING DOWN 'Administrative Accounting'

Administrative accounting involves a formal methodology for gathering, reporting and evaluating
financial data that deals with management planning and control. The reports can help
administrators and managers evaluate the day-to-day activities of the operation.
Accounting
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Accounting
00:05 / 01:44

Batch-Level
AccountingActivities
is the systematic and comprehensive recording of financial transactions pertaining to a
business, and it also refers to the process of summarizing, analyzing and reporting these
transactions to oversight agencies and tax collection entities. Accounting is one of the key functions
Cost Accounting
for almost any business; it may be handled by a bookkeeper and accountant at small firms or by
sizable finance departments with dozens of employees at large companies.
BREAKING DOWN 'Accounting'
The reports generated by various streams of accounting, such as cost accounting and management
accounting, are invaluable in helping management make informed business decisions. While basic
accounting functions can be handled by a bookkeeper, advanced accounting is typically handled by
qualified accountants
Accounting who possess
Information System - ... designations such as Certified Public Accountant (CPA) in the
United States, or Chartered Accountant (CA), Certified General Accountant (CGA) or Certified
Management Accountant (CMA) in Canada.
Account Analysis
Creating Financial Statements

TheAccountant's
The financial statements
Magazine that
- TAMsummarize a large company's operations, financial position and cash
flows over a particular period are concise statements based on thousands of financial transactions.
As a result, all accounting designations are the culmination of years of study and rigorous
examinations combined with a minimum number of years of practical accounting experience.
Generally Accepted Accounting Principles

In most cases, accountants use generally accepted accounting principles (GAAP) when preparing
financial statements. GAAP is a set of standards related to balance sheet identification, outstanding
share measurements and other accounting issues, and its standards are based on double-entry
accounting, a method which enters each expense or incoming revenue in two places on a company's
balance sheet.
Example of Double Entry Accounting

To illustrate double-entry accounting, imagine a business issues an invoice to one of its clients. An
accountant using the double-entry method enters a credit under the accounts receivables column
and a debit under the balance sheet's revenue column. When the client pays the invoice, the
accountant debits accounts receivables and credits revenue. Double-entry accounting is also called
balancing the books, as all of the accounting entries are balanced against each other. If the entries
aren't balanced, the accountant knows there must be a mistake somewhere in the ledger.
Financial Accounting Versus Management Accounting

Financial accounting refers to the processes accountants use to generate the annual accounting
statements of a firm. Management accounting uses much of the same processes but utilizes
information in different ways. Namely, in management accounting, an accountant generates
monthly or quarterly reports that a business's management team can use to make decisions about
how the business operates.
Financial Accounting Versus Cost Accounting

Just as management accounting helps businesses make decisions about management, cost
accounting helps businesses make decisions about costing. Essentially, cost accounting considers
all of the costs related to producing a product. Analysts, managers, business owners and
accountants use this information to determine what their products should cost. In cost accounting,
money is cast as an economic factor in production, whereas in financial accounting, money is
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consideredUP:to: be
ACCOUNT ANALYSIS
a measure of a company's economic performance.
Accounting
Batch-Level Activities
Cost Accounting
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In managerial accounting,
accounting, production costs that are incurred only when a new batch is processed.
These costs might include things like set-up time, moving materials and loading machines. For these
costs, itAnalysis
Account does not matter how many units are produced in the batch.
BREAKING DOWN 'Batch-Level Activities'

It is important to understand by which manner costs are incurred for two primary reasons. First,
when financial managers understand that certain costs are incurred by batch, they may choose to
run larger batches in order to minimize cost. Second, understanding the batch cost allows
managerial accountants to more accurately assign production costs to end products. This makes a
product profitability analysis more accurate.
Cost Accounting
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Video Definition
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Cost accounting is a type of accounting process that aims to capture a company's costs of
production by assessing the input costs of each step of production as well as fixed costs such as
depreciation of
Administrative capital equipment. Cost accounting will first measure and record these costs
Accounting
individually, then compare input results to output or actual results to aid company management in
measuring financial performance.
performance.
Accounting
BREAKING DOWN 'Cost Accounting'

While cost accounting
Batch-Level Activities is often used within a company to aid in decision making, financial accounting
is what the outside investor community typically sees. Financial accounting is a different
representation of costs and financial performance that includes a company's assets and liabilities
liabilities..
Cost Accounting
Cost accounting can be most beneficial as a tool for management in budgeting and in setting up cost
control programs, which can improve net margins for the company in the future.

One key difference between cost accounting and financial accounting is that while in financial
accounting the cost is classified depending on the type of transaction, cost accounting classifies
Push
costsDown Accounting
according to information needs of the management.Cost accounting, because it is used as an
internal tool by management, does not have to meet any specific standard set by
theGenerallyAccepted
the GenerallyAccepted Accounting Principles and as result varies in use from company to company
or from department to department.
Development
Account Analysis of Cost Accounting
Scholars have arguedthat
arguedthat cost accounting was first developedduring theindustrial
theindustrial revolutionwhen
revolutionwhen
the emerging economics of industrial supply and demand forced manufacturers to start tracking
whether to decrease the price of their overstocked goods or decrease production.
During the early 19th century when David Ricardo and T.R.Malthuswere developing the field
ofeconomic theory, writers like Charles Babbage were writing the first books designed to guide
businesses on how to manage their internal cost accounting.
By the beginning of the 20th century,

century, cost accounting had become a widely covered topic in the
literature of business management.
Types of Cost Accounting

Standard Cost Accounting
This type of cost accounting uses ratios to compare efficient uses of labor and materials to produce
goods or services under standard conditions.Assessing these differences is called a variance
analysis.Traditional
analysis.Traditional cost accounting essentially allocates cost based on one measure, labor or
machine hours. Due to the fact thatoverhead cost has risen proportionate to labor costsince the
genesis of standard cost accounting, allocating overhead cost as an overall cost has ended up
producingoccasionally misleading insights.
Some of the issues associated with cost accounting is that this type of accounting emphasizes labor
efficiency despite the fact that it makes up a comparatively small amount of the costs for modern
companies.
Activity Based Costing
The Charter Institute of Management Accountants defines activity based accounting as, "an
approach to the costing and monitoring of activities which involves tracing resource consumption
and costing final outputs, resources assigned to activities, and activities to cost objects based on
consumption estimates. The latter utilize cost drivers to attach activity costs to outputs."
Activity based costing accumulates the overheads from each department andassigns them to
specific cost objects like services, customers, or products. The way these costs are assigned to cost
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objects UP:
UP : ACCOUNT
first decided in anANALYSIS
activity analysis, where appropriate output measures are cost drivers.
As result, activity based costing tends to be much more accurate and helpful when it comes to
helping managers understand the cost and profitabilityof their company's specific services or
products. Accountants using activity based costing will pass out a survey to employees who will then
account for the
Administrative amount of time they spend on different tasks. This gives management a better idea
Accounting
of where their time and money is being spent.
Accounting
Lean Accounting
Lean accounting
Batch-Level isan extension of the philosophy of lean manufacturing and productiondeveloped
Activities productiondeveloped
by Japanese companies in the 1980s. Most accounting practices for manufacturing work off the
assumption that whatever is being produced is done in a large scale. Instead of using standard
Cost Accounting
costing, activity based costing, cost-plus pricing, or other management accounting systems, when
using lean accounting those methods are replaced by value-based pricingand
pricingand lean-focused
performance measurements, for example, using a box score to facilitate decision making and create
simplified and digestiblefinancial reports.
Push DownCosting
Marginal Accounting
ConsideredInformation
Accounting a simplified model- ...
System of cost accounting, marginal costing (sometimes called cost-volume-
profit analysis)
analysis) is an analysis of the relationship between a product or service's sales price, the
volume of sales, the amount produced, expenses, costs and profits
profits.. That specific relationship is
Account Analysis
called the contribution margin.
margin. The contribution margin is calculated by dividing revenue minus
variable cost by revenue. This type of analysis can be used by management to gain insight on
potential profits as impacted by changing costs, what types of sales prices to establish, and types of
marketing campaigns.
Types of Costs
Fixed Costs are coststhat don't vary depending ont he amount of work a company is doing. These
are usually things like the payment on a building, or a piece of equipment that is depreciating at a
fixed monthly rate.
Variable costs are tied to a company's level of production. An example could be a coffee roaster, who
after receiving a large order of beans from a far-away locale, has to pay a higher rate for both
shipping, packaging, and processing.
Operating costs are costs associated with the day-to-day operations of a business. These costs can
be either fixed or variable depending.
Direct costs is the cost related to producing a product. If a coffee roaster spends 5 hours roasting
coffee, the direct costs of the finished product include the labor hours of the roaster, and the cost of
the coffee green. The energy cost to heat the roaster would be indirect because they're inexact, hard
to trace.
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Accounting
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Cost Accounting
In managerial accounting, a method of tracking production costs based on an approximation of the

prices of the inputs multiplied by the actual quantity of inputs used. In normal costing, the actual
prices are used for direct labor and direct materials, and only the overhead rate is estimated.
Extended
Push Downnormal costing uses estimates for direct labor and direct material prices as well as
Accounting
overhead.

BREAKING DOWN 'Extended Normal Costing'
Selecting an accurate method of costing is important for maximizing profitability. Since extended
normal Analysis
Account costing relies heavily on estimates of input prices, it may produce inaccurate results unless
estimates are carefully prepared. However, in cases where it is very difficult to track all of the costs
going into a product, extended normal costing may be the most effective ways to assign production
costs.
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Push down accounting is accounting for mergers and acquisitions,

acquisitions, the convention of accounting of
the purchase of a subsidiary at the purchase cost rather than its historical cost.
cost. This method of
accounting is required under U.S. GAAP
GAAP,, but is not accepted in IFRS accounting standards.
standards. Since the
subsidiary is consolidated into the parent company for financial reporting purposes, push down
accounting appears the same on a firm's external financial reporting.
BREAKING DOWN 'Push Down Accounting'

It is sometimes helpful to think of push down accounting is as if a new company were started using
borrowed funds. Both the debt, as well as the assets acquired, are recorded as part of the new
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subsidiary.
subsidiary . : ACCOUNT ANALYSIS
From a managerial perspective, keeping the debt on the subsidiary's books helps in judging the
profitability ofAccounting
Administrative the acquisition. From a tax and reporting perspective, the advantages or
disadvantages of push down accounting will depend on the details of the acquisition, as well as the
jurisdictions involved.
Accounting
Cost Accounting
Accounting Information
Account Analysis
System - AIS
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An accounting information system (AIS) is the collection, storage and processing of financial and
accounting data used by internal users to report information to investors, creditors and tax
authorities. An accounting information system is generally a computer-based method for tracking
accounting activity in conjunction with information technology resources. An accounting
information system combines traditional accounting practices,
practices, such as the Generally Accepted
Accounting Principles (GAAP),
(GAAP), with modern information technology resources.
BREAKING DOWN 'Accounting Information System - AIS'

An accounting information system contains various elements important in the accounting cycle.
Although the information contained in a system varies among industries and business sizes, a
typical accounting information system includes data relating to revenue, expenses, customer
information, employee information and tax information. Specific data includes sales orders and
analysis reports, purchase requisitions, invoices, check registers, inventory, payroll, ledger, trial
balance and financial statement information.
In addition, accounting information systems are often highly secured platforms with preventative
measures taken against viruses, hackers and other external sources attempting to collected
information.
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Account Analysis
Account Analysis
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Accounting
1. In cost accounting,
accounting, this is a way for an accountant to analyze and measure the cost behavior of a
firm. The process involves examining cost drivers and classifying them as either fixed or variable
Cost Accounting
costs.. The cost accountant then uses the company's data to figure out the estimated variable cost
costs
per cost-driver unit or fixed cost per period.
2. In banking, it is a periodic statement outlining the banking services provided to a firm. The
statement is usually provided monthly and involves displaying all pertinent data, including the
company's average daily balance and charges that the company incurs from the bank.

BREAKING DOWN 'Account Analysis'
1. In accounting, account analysis is quite complex and involves in-depth understanding of both the
Account Analysis
data and the company. It is usually performed by an experienced cost accountant, possibly with the
help of one of the company's managers, who deals closely with the company's costs.
2. In banking, you can think about account analysis as similar to the statements you receive for your
personal bank accounts. Since it is for a company account, however, it is much more detailed and on
a larger scale.
The Accountant's
Magazine - TAM
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A Scottish trade publication that covered topics related to accountancy as a profession. The
Accountant's Magazine helped establish accounting as a skilled profession at a time when chartered
accountants were just becoming recognized as legitimate.
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BREAKING DOWN 'The Accountant's Magazine - TAM'

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5/5/2017 AccountingInformationSystemAIS

What is 'Managerial Accounting' Loading the player...

BREAKING DOWN 'Managerial Accounting'

Cost Accounting Trading Center

Push Down Accounting

Accounting Information System - ...

The Accountant's Magazine - TAM

BREAKING DOWN 'Administrative Accounting'

Creating Financial Statements

Generally Accepted Accounting Principles

Example of Double Entry Accounting

Financial Accounting Versus Management Accounting

Financial Accounting Versus Cost Accounting

Extended Normal Costing

Push Down Accounting

Accounting Information System - ...

BREAKING DOWN 'Batch-Level Activities'

BREAKING DOWN 'Cost Accounting'

Extended Normal Costing

By the beginning of the 20th century,

Types of Cost Accounting

Activity Based Costing

In managerial accounting, a method of tracking production costs based on an approximation of the

Accounting Information System - ...

Push Down Accounting

Push down accounting is accounting for mergers and acquisitions,

BREAKING DOWN 'Push Down Accounting'

Extended Normal Costing

Push Down Accounting

Accounting Information System - ...

BREAKING DOWN 'Accounting Information System - AIS'

Accounting Information System - ...

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