Chapter 15

Distinguish management accounting from

financial accounting
 Owners

Governmen
Creditors
t

Suppliers Customers

Managers

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Managements Accountability to
Stakeholders
Stakeholders Provide Management is
accountable for:
Operating activities
Suppliers Products & ?
services
Employees Time & ?
expertise
Customers Cash ?
Investing activities
Suppliers Long-term ?
assets

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Managements Accountability to
Stakeholders
Stakeholders Provide Management is
accountable for:
Financing activities
Owners Cash or other ?
assets
Creditors Cash ?
Actions that affect society
Governments Permission to ?
operate
Communities Human and ?
physical
resources

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 For external reporting For internal planning
and control

Financial Accounting Management Accounting

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 Management versus Financial
Accounting
Management Financial
Accounting Accounting
Primary users Internal the companys External investors
managers and creditors
Purposes of Help managers plan and Help with investment
information control operations and credit decisions
Focus and time Relevance of Relevance and
dimension information; focus on the reliability of
future information; focus on
the past
Type of report Internal reports Financial statements
No audit needed prescribed by GAAP
Audit by CPAs
Scope of Detailed reports on a Summarized reports
information weekly or daily basis quarterly and/or
annually
Behavioral Concern about how Concern about
reports affect employee adequate disclosure
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Identify trends in the business environment
and the role of management accountability
 Shift toward a service economy
Global competition
Time-based competition
Total Quality Management

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Classify costs and prepare an income
statement for a service company
 Seek to provide services
Simplest accounting
All costs are period costs

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 Net income

Revenues Expenses

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 Classify costs and prepare an income
statement for a merchandising company
 Resell products purchased from suppliers
Keep an inventory of products
Cost of goods sold is a major expense

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 Includes cost to purchase goods plus
freight-in

Beginning inventory
Plus: Purchases, net
Plus: Freight-in
Less: Ending inventory
Equals: Cost of goods sold

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Cost of Unit cost
goods Units sold of one
sold brush

5,700
$64,200 $?
units sold

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 Classify costs and prepare an income
statement and statement of cost of goods
manufactured for a manufacturing company
 Use labor, plant, supplies and facilities to
convert raw materials into finished products
Three kinds of inventory Finished
goods
Work in inventory
process
inventory
Materials
inventory

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Cost object: Anything for which managers want a
separate measurement of cost

Direct costs Indirect costs

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 Includes only indirect costs related to
manufacturing
Examples:

Indirect materials
Indirect labor

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 Other costs related to the manufacturing
facility and plant assets
Repairs & maintenance
Utilities
Rent & insurance
Property taxes
Depreciation

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Type of company Inventoriable Period costs
product costs (Expenses)

Service company None Salaries, depreciation,

utilities, advertising,
insurance, property
taxes
Merchandising Purchases plus freight Salaries, depreciation,
company in utilities, advertising,
insurance, property
taxes and delivery
expense
Manufacturing Direct materials, Office salaries,
company Direct labor and depreciation, utilities,
manufacturing advertising,
overhead insurance, property
taxes on office,
selling expenses
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 BALANCE SHEET

Purchase
s of Materials
material Inventory INCOME STATEMENT
s

Sales
Direct labor Work in
&
manufacturi
Process -
Inventory When
ng overhead
sales Cost of
occur Goods Sold
Finished -
Goods Operating
Period
Inventory Costs Expenses
=
Operating Income
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Beginnin
Direct Ending
g Work
material Work in
in
s used process
process

Total Direct
manufacturi labor
ng costs
Cost of goods
manufactured
Manufacturi
ng overhead
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Direct materials Work in process Finished goods
inventory inventory inventory
Beginning Beginning Beginning
inventory inventory inventory
+ Purchases and + Direct materials + Cost of goods
freight-in used manufactured
= Direct materials + Direct labor = Cost of goods
available for use available for sale
+ Manuf. overhead
- Ending inventory - Ending inventory - Ending inventory
= Direct materials = Cost of goods = Cost of goods
used manufactured sold

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Use reasonable standards to make ethical
judgments
 Institute of Management Accountants (IMA)
developed standards to help meet ethical
challenges

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