Chapter 1 Introduction to Management and Cost Accounting

CHAPTER 1:
INTRODUCTION TO MANAGEMENT
AND COST ACCOUNTING

TYPES OF
ACCOUNTING

FINANCIAL MANAGEMENT COST

ACCOUNTING ACCOUNTING ACCOUNTING

1. 0 D
efinition

Financial Accounting *0 The classification and recording of monetary

transactions of an entity in accordance with established
concepts, principles, accounting standards and legal
requirements and presentation of a view of those
transactions during and at the end of an accounting period

*1 Focuses on reporting to external parties such as

investors, government agencies, bank and suppliers

*2 Measures and records business transaction and provides

financial statement that are based on Generally accepted
Accounting Principles (GAAP).

Management Accounting *3 Provide information for internal users. Generally it is

used by the manager in assisting them managing the
company. Besides, it guides the manager how to choose,
communicate and implement strategy.

*4 It identifies, collects, measures, classifies, and reports

information that is useful to managers in planning,
controlling, and decision making
1
Chapter 1 Introduction to Management and Cost Accounting

Cost Accounting *5 The establishment of budgets, standard costs and actual

costs of operation, processes, activities or products; and the
analysis of variances, profitability or the social use of funds

*6 Measures, analyzes and reports financial and non

financial information relating to the cost or using resources
in an organization.

1.1 R oleoftheCost/Managemen
tAccoun
tan tin
th
e Man agem ent Pro cess

1. Planning
 Planning process : Helps to formulate future plans
 Budgeting process: providing data on past performance

2. Control
 Producing performance report
 Assist the control function by providing prompt measurements of actions and identifying
trouble areas.

3. Organizing
 Consolidate the organizational structure.

4. Communication
Aids the communication function by installing and maintaining an effective communication
and reporting system.

5. Motivation
Budgets and performance reports have an important influence on the motivation of the
personnel of the organization
Provide valuable assistance in identifying potential managerial problem areas and
highlighting those items for detailed investigations.

2
Chapter 1 Introduction to Management and Cost Accounting

1.2 C omparisonbetw eenM anagement

A
ccoun
tingan dF inancialAccoun
tin
g

Management Accounting Financial Accounting

1. Users of Information
*7 Managers, within the organization • Interested parties, outside the
organization
2. Legal Requirements
*8 entirely optional and • statutory requirements for public
information should be produced limited companies to produce annual
only if the benefits > cost reports
3. Precision
*9 approximate information is *10 information must be
required rapidly for decision making reasonably accurate

4. Segments
*11focuses on small parts of the *12 describe the whole of the organization
organization, eg. Individual product,
activities, departments

5. Accepted Accounting Principles

*13 can use whatever • accounts are prepared to meet the
accounting rules that it finds the requirements of the Companies Acts
most useful for decision making and Statements of Standard
Accounting Practice
6. Time Dimension
*14 is concerned with future *15 reports what has happened in the past
information as well as past in an organization
information

7. Report Frequency
*16 management accounting *17 a detailed set of financial
reports on various accounts may be accountings is published annually
prepared at daily, weekly or monthly *18 less detailed accounts are
published semi-annually