Financial & Managerial Accounting 2002e <ul><li>Belverd E. Needles, Jr. </li></ul><ul><li>Marian Powers </li></ul><ul><li>...
Chapter 15 A Manager’s Perspective: The Changing Business Environment
<ul><li>Define  management accounting  and distinguish between management accounting and financial accounting.   </li></ul...
<ul><li>Define  performance measures,  recognize the uses of those measures in the management cycle, and prepare an analys...
Definition of Management Accounting  <ul><li>The Institute of Management Accountants (IMA):   </li></ul><ul><li>“ The proc...
Introduction to  Management Accounting OBJECTIVE 1 Define  management accounting  and distinguish between management accou...
Management Accounting <ul><li>Management accounting is an extension of financial accounting and applies mainly to internal...
Management Accounting <ul><li>Managers need various types of  </li></ul><ul><li>timely, accurate information. </li></ul><u...
Management Accounting <ul><li>Management accounting is necessary for all forms and sizes of business. </li></ul><ul><ul><l...
What Is Management Accounting? <ul><li>Management accounting differs from financial accounting in many respects. </li></ul...
Comparison of Management and Financial Accounting Areas of Comparison Management Accounting Financial Accounting Report fo...
Comparison of Management and Financial Accounting Areas of Comparison Management Accounting Financial Accounting Units of ...
<ul><li>Q. What three types of information does management receive from the management accountant? </li></ul><ul><li>A. Pr...
The Management Cycle OBJECTIVE 2 Explain the management cycle and its connection to management accounting.
The Management Cycle <ul><li>Management is expected to use resources wisely, operate profitably, pay debts, and abide by l...
The Management Cycle <ul><li>Traditionally, management operates in four stages: </li></ul><ul><ul><li>Planning </li></ul><...
The Management Cycle
The Management Cycle <ul><li>Management accounting services information needs of management by: </li></ul><ul><ul><li>Deve...
<ul><li>Q. What are the four stages of traditional management? </li></ul><ul><li>A. 1. Planning. </li></ul><ul><li>2. Exec...
Meeting the Demands of Global Competition OBJECTIVE 3 Identify the new management philosophies for continuous improvement ...
New Management Philosophies <ul><li>Three significant new management philosophies are as follows: </li></ul><ul><ul><li>Ju...
New Management Philosophies <ul><li>All of these approaches are designed to: </li></ul><ul><ul><li>Increase product qualit...
The Continuous Improvement Environment
Theory of Constraints  <ul><li>Identify performance or production bottlenecks (limiting factors). </li></ul><ul><li>Overco...
The Goal: Continuous Improvement  <ul><li>Avoid complacency.  </li></ul><ul><li>Constantly seek a better method.  </li></u...
<ul><li>Q. What are the new management philosophies designed to accomplish? </li></ul><ul><li>A. 1. Increase product quali...
Performance Measures OBJECTIVE 4 Define  performance measures,  recognize the uses of those measures in the management cyc...
Performance Measures <ul><li>Performance measures provide an indication of an organization’s performance in relation to a ...
Examples of Performance Measures <ul><li>Financial performance measures: </li></ul><ul><ul><li>Return on investment. </li>...
Performance Measures <ul><li>Performance measures are useful in reducing waste in operating activities. </li></ul><ul><li>...
Analysis of Nonfinancial Data – Bank Kings Beach National Bank Summary of Number of Customers Served For the Quarter Ended...
The Balanced Scorecard <ul><li>A framework that links the perspective of shareholders:  </li></ul><ul><ul><li>Investors </...
Analysis of Nonfinancial Data  <ul><li>Performance targets and measurements of business process may be nonfinancial.  </li...
Analysis of Nonfinancial Data – Bank Kings Beach National Bank Summary of Number of Customers Served For the Quarter Ended...
<ul><li>Q. Give three examples of reports based on non-financial data that are useful to a bank manager. </li></ul><ul><li...
Management Accounting Reports and Analysis OBJECTIVE 5 Identify the important questions a manager must consider before req...
The Four W’s <ul><li>Report preparation depends on: </li></ul><ul><ul><li>Why? </li></ul></ul><ul><ul><ul><li>Why are we p...
<ul><li>Q. State and briefly explain the “four W’s” of preparing a managerial report. </li></ul><ul><li>A. Why is the repo...
Merchandising Versus Manufacturing Organizations OBJECTIVE 6 Compare accounting for inventories and cost of goods sold in ...
Comparison of Financial Statements for Service, Merchandising, and Manufacturing Organizations
Service, Merchandising, and Manufacturing Organization <ul><li>Different types of organizations have different financial r...
Merchandisers <ul><li>Merchandisers purchase goods already   manufactured, and resell them.  </li></ul><ul><ul><li>They ac...
Merchandising Organization  <ul><li>Beginning Merchandise Inventory </li></ul><ul><li>+ Net Cost of Goods Purchased  </li>...
Manufacturers <ul><li>Manufacturers design and manufacture products for sale. </li></ul><ul><ul><li>They must accumulate t...
Manufacturing Organization Beginning Finished Goods Inventory  +  Cost of Goods Manufactured  -  Ending Finished Goods Inv...
Service Companies  <ul><li>Service Companies’ Cost of Sales = Net Cost of Services Sold   </li></ul>
Manufacturing Versus Merchandising <ul><li>Both types of organizations report: </li></ul><ul><ul><li>The cost of unsold go...
<ul><li>Q. What three inventory accounts does a manufacturer maintain? </li></ul><ul><li>A. 1. Materials Inventory. </li><...
Standards of Ethical Conduct OBJECTIVE 7 Identify the standards of ethical conduct for management accountants.
Ethical Conflicts <ul><li>May occur because different constituencies have different requirements.  </li></ul><ul><li>Manag...
Ethical Standards <ul><li>The management accountant’s ethical standards relate to: </li></ul><ul><ul><li>Competence. </li>...
Competence Standards <ul><li>Develop knowledge and skills on an ongoing basis. </li></ul><ul><li>Perform duties in accorda...
Confidentiality Standards <ul><li>Refrain from disclosing confidential information. </li></ul><ul><li>Make sure that subor...
Integrity Standards <ul><li>Avoid actual or apparent conflicts of interest. </li></ul><ul><li>Avoid activities that would ...
Integrity Standards <ul><li>Avoid activities that could threaten the organization’s legitimate and ethical objectives. </l...
Objectivity Standards <ul><li>Communicate information fairly and objectively. </li></ul><ul><li>Disclose fully all relevan...
Resolution of Ethical Conflict <ul><li>Follow organizational policies.  </li></ul><ul><li>If these do not resolve the conf...
<ul><li>Q. Management accountants must adhere to what four facets of ethical conduct? </li></ul><ul><li>A. 1. Competence. ...
<ul><li>Define  management accounting  and distinguish between management accounting and financial accounting. </li></ul><...
CONTINUING OUR REVIEW . . . <ul><li>Define  performance measures,  recognize the uses of those measures in the management ...
AND FINALLY . . . <ul><li>Compare accounting for inventories and cost of goods sold in merchandising and manufacturing org...
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Chapter 1 Uses of Accounting Information and the Basic Financial ...

  1. 1. Financial & Managerial Accounting 2002e <ul><li>Belverd E. Needles, Jr. </li></ul><ul><li>Marian Powers </li></ul><ul><li>Susan Crosson </li></ul><ul><li>- - - - - - - - - - - </li></ul><ul><li>Multimedia Slides by: </li></ul><ul><li>Harry Hooper </li></ul><ul><li>Santa Fe Community College </li></ul>
  2. 2. Chapter 15 A Manager’s Perspective: The Changing Business Environment
  3. 3. <ul><li>Define management accounting and distinguish between management accounting and financial accounting. </li></ul><ul><li>Explain the management cycle and its connection to management accounting. </li></ul><ul><li>Identify the management philosophies of continuous improvement and discuss the role of management accounting in implementing those philosophies. </li></ul>LEARNING OBJECTIVES
  4. 4. <ul><li>Define performance measures, recognize the uses of those measures in the management cycle, and prepare an analysis of non-financial data. </li></ul><ul><li>Identify the important questions a manager must consider before requesting or preparing a management report. </li></ul><ul><li>Compare accounting for inventories and cost of goods sold in merchandising, and manufacturing organizations. </li></ul><ul><li>Identify the standards of ethical conduct for management accountants. </li></ul>LEARNING OBJECTIVES
  5. 5. Definition of Management Accounting <ul><li>The Institute of Management Accountants (IMA): </li></ul><ul><li>“ The process of identification, measurement, accumulation, analysis, preparation, interpretation, and communication of financial (and nonfinancial) information used by management to plan, evaluate, and control within the organization and to assure appropriate use and accountability for its resources. </li></ul>
  6. 6. Introduction to Management Accounting OBJECTIVE 1 Define management accounting and distinguish between management accounting and financial accounting.
  7. 7. Management Accounting <ul><li>Management accounting is an extension of financial accounting and applies mainly to internal operations. </li></ul><ul><li>Management accounting focuses on the techniques and procedures for information gathering and reporting to management. </li></ul>
  8. 8. Management Accounting <ul><li>Managers need various types of </li></ul><ul><li>timely, accurate information. </li></ul><ul><ul><li>Product and service costing information. </li></ul></ul><ul><ul><li>Information for planning of and control over operations. </li></ul></ul><ul><ul><li>Special reports and analyses to assist in managerial decision making. </li></ul></ul>
  9. 9. Management Accounting <ul><li>Management accounting is necessary for all forms and sizes of business. </li></ul><ul><ul><li>The types of data needed to ensure efficient operations do not depend on an organization’s size. </li></ul></ul><ul><ul><li>All organizations can become more cost-effective and more profitable . </li></ul></ul>
  10. 10. What Is Management Accounting? <ul><li>Management accounting differs from financial accounting in many respects. </li></ul><ul><ul><li>Report format. </li></ul></ul><ul><ul><li>Purpose of reports. </li></ul></ul><ul><ul><li>Primary users. </li></ul></ul><ul><ul><li>Units of measure. </li></ul></ul><ul><ul><li>Nature of information. </li></ul></ul><ul><ul><li>Frequency of reporting. </li></ul></ul>
  11. 11. Comparison of Management and Financial Accounting Areas of Comparison Management Accounting Financial Accounting Report format Flexible format, driven by user's needs Based on generally accepted accounting principles Purpose of reports Provides information for planning, control, performance measurement, and decision making Report on past performance Primary users Employees, managers, suppliers Owners, lenders, customers, government agencies
  12. 12. Comparison of Management and Financial Accounting Areas of Comparison Management Accounting Financial Accounting Units of measure Historical or future dollar; physical measure in time or number of objects Historical dollar Nature of information Future-oriented; objective for decision making; more subjective for planning; relies on estimates Historical, objective Frequency of reports Prepared as needed; may or may not be on a regular basis Prepared on a regular basis (minimum of once a year)
  13. 13. <ul><li>Q. What three types of information does management receive from the management accountant? </li></ul><ul><li>A. Product costing information, planning and control information, and special reports and analyses. </li></ul>Discussion
  14. 14. The Management Cycle OBJECTIVE 2 Explain the management cycle and its connection to management accounting.
  15. 15. The Management Cycle <ul><li>Management is expected to use resources wisely, operate profitably, pay debts, and abide by laws and regulations. </li></ul><ul><li>Expectations motivate managers to establish the objectives, goals, and strategic plans of the organization. </li></ul>
  16. 16. The Management Cycle <ul><li>Traditionally, management operates in four stages: </li></ul><ul><ul><li>Planning </li></ul></ul><ul><ul><ul><li>Long and short term. </li></ul></ul></ul><ul><ul><ul><li>To support decision-making and set expectations. </li></ul></ul></ul><ul><ul><li>Executing </li></ul></ul><ul><ul><ul><li>Hiring, scheduling, acquiring assets (including inventory), reducing waster, generating revenues. </li></ul></ul></ul><ul><ul><li>Reviewing </li></ul></ul><ul><ul><ul><li>Controlling operations. </li></ul></ul></ul><ul><ul><ul><li>Comparing actual performance to plan. </li></ul></ul></ul><ul><ul><li>Reporting </li></ul></ul><ul><ul><ul><li>To stockholders, creditors, other managers, other interested parties. </li></ul></ul></ul>
  17. 17. The Management Cycle
  18. 18. The Management Cycle <ul><li>Management accounting services information needs of management by: </li></ul><ul><ul><li>Developing plans and analyzing alternatives. </li></ul></ul><ul><ul><li>Communicating plans to key personnel. </li></ul></ul><ul><ul><li>Evaluating performance. </li></ul></ul><ul><ul><li>Reporting the results of activities. </li></ul></ul><ul><ul><li>Accumulating, maintaining, and processing an organization’s financial and nonfinancial information. </li></ul></ul>
  19. 19. <ul><li>Q. What are the four stages of traditional management? </li></ul><ul><li>A. 1. Planning. </li></ul><ul><li>2. Executing. </li></ul><ul><li>3. Reviewing. </li></ul><ul><li>4. Reporting. </li></ul>Discussion
  20. 20. Meeting the Demands of Global Competition OBJECTIVE 3 Identify the new management philosophies for continuous improvement and discuss the role of management accounting in implementing these philosophies.
  21. 21. New Management Philosophies <ul><li>Three significant new management philosophies are as follows: </li></ul><ul><ul><li>Just-in-time (JIT) operating environment. </li></ul></ul><ul><ul><li>Total quality management (TQM). </li></ul></ul><ul><ul><li>Activity-based management (ABM). </li></ul></ul>
  22. 22. New Management Philosophies <ul><li>All of these approaches are designed to: </li></ul><ul><ul><li>Increase product quality. </li></ul></ul><ul><ul><li>Reduce waste and inefficiency. </li></ul></ul><ul><ul><li>Reduce cost. </li></ul></ul><ul><ul><li>Increase customer satisfaction. </li></ul></ul>
  23. 23. The Continuous Improvement Environment
  24. 24. Theory of Constraints <ul><li>Identify performance or production bottlenecks (limiting factors). </li></ul><ul><li>Overcome limitation. </li></ul><ul><li>Identify next bottleneck. </li></ul>
  25. 25. The Goal: Continuous Improvement <ul><li>Avoid complacency. </li></ul><ul><li>Constantly seek a better method. </li></ul><ul><li>Reduce defects or poor quality. </li></ul><ul><li>Reduce or eliminate nonvalue-adding activities. </li></ul><ul><li>Results: Product/service costs and delivery times reduced. Quality and customer satisfaction increases. </li></ul>
  26. 26. <ul><li>Q. What are the new management philosophies designed to accomplish? </li></ul><ul><li>A. 1. Increase product quality. </li></ul><ul><li>2. Reduce waste and inefficiency. </li></ul><ul><li>3. Reduce cost. </li></ul><ul><li>4. Increase customer satisfaction. </li></ul>Discussion
  27. 27. Performance Measures OBJECTIVE 4 Define performance measures, recognize the uses of those measures in the management cycle, and prepare an analysis of nonfinancial data.
  28. 28. Performance Measures <ul><li>Performance measures provide an indication of an organization’s performance in relation to a specific goal or an expected outcome. </li></ul>
  29. 29. Examples of Performance Measures <ul><li>Financial performance measures: </li></ul><ul><ul><li>Return on investment. </li></ul></ul><ul><ul><li>Net income as a percentage of sales. </li></ul></ul><ul><ul><li>Costs of poor quality as a percentage of sales. </li></ul></ul><ul><li>Nonfinancial performance measures: </li></ul><ul><ul><li>Number of customer complaints. </li></ul></ul><ul><ul><li>Hours of inspection. </li></ul></ul><ul><ul><li>Time to fill an order. </li></ul></ul>
  30. 30. Performance Measures <ul><li>Performance measures are useful in reducing waste in operating activities. </li></ul><ul><li>Management uses performance measures in all stages of the management cycle. </li></ul><ul><ul><li>In planning to motivate. </li></ul></ul><ul><ul><li>In executing to guide, and assign costs. </li></ul></ul><ul><ul><li>In reviewing to improve future performance. </li></ul></ul><ul><ul><li>In reporting to communicate results. </li></ul></ul>
  31. 31. Analysis of Nonfinancial Data – Bank Kings Beach National Bank Summary of Number of Customers Served For the Quarter Ended December 31, 20xx Part A Number of Customers Served Window October November December Quarter Totals 1 5,428 5,186 5,162 15,776 2 5,280 4,820 4,960 15,060 3 4,593 4,494 4,580 13,667 Totals 15,301 14,500 14,702 44,503
  32. 32. The Balanced Scorecard <ul><li>A framework that links the perspective of shareholders: </li></ul><ul><ul><li>Investors </li></ul></ul><ul><ul><li>Employees </li></ul></ul><ul><ul><li>Customers </li></ul></ul><ul><li>with the organization’s mission, vision, plans, and resources. </li></ul><ul><li>Provides clear, measurable performance targets. </li></ul>
  33. 33. Analysis of Nonfinancial Data <ul><li>Performance targets and measurements of business process may be nonfinancial. </li></ul><ul><li>Quality related performance measures are often nonfinancial. </li></ul>
  34. 34. Analysis of Nonfinancial Data – Bank Kings Beach National Bank Summary of Number of Customers Served For the Quarter Ended December 31, 20xx Part B Number of Customers Served per Hour Window October November December Quarter Averages 1 31.93 30.51 30.36 30.93 2 31.06 28.35 29.18 29.53 3 27.02 26.44 26.94 26.80 Totals 90.01 85.30 86.48 87.26
  35. 35. <ul><li>Q. Give three examples of reports based on non-financial data that are useful to a bank manager. </li></ul><ul><li>A. Teller transaction analysis. </li></ul><ul><li>Drive-up window efficiency reports. </li></ul><ul><li>Time needed to complete a loan transaction. </li></ul>Discussion
  36. 36. Management Accounting Reports and Analysis OBJECTIVE 5 Identify the important questions a manager must consider before requesting or preparing a management report.
  37. 37. The Four W’s <ul><li>Report preparation depends on: </li></ul><ul><ul><li>Why? </li></ul></ul><ul><ul><ul><li>Why are we preparing the report? </li></ul></ul></ul><ul><ul><li>What? </li></ul></ul><ul><ul><ul><li>What information is needed? </li></ul></ul></ul><ul><ul><li>Who? </li></ul></ul><ul><ul><ul><li>Who is the audience for the report? </li></ul></ul></ul><ul><ul><li>When? </li></ul></ul><ul><ul><ul><li>When is the report due? </li></ul></ul></ul>
  38. 38. <ul><li>Q. State and briefly explain the “four W’s” of preparing a managerial report. </li></ul><ul><li>A. Why is the report being prepared? </li></ul><ul><li>What information should be provided? </li></ul><ul><li>For whom is the report intended? </li></ul><ul><li>When is the report due? </li></ul>Discussion
  39. 39. Merchandising Versus Manufacturing Organizations OBJECTIVE 6 Compare accounting for inventories and cost of goods sold in service, merchandising, and manufacturing organizations.
  40. 40. Comparison of Financial Statements for Service, Merchandising, and Manufacturing Organizations
  41. 41. Service, Merchandising, and Manufacturing Organization <ul><li>Different types of organizations have different financial reporting formats. </li></ul><ul><li>Examples: </li></ul><ul><ul><li>Service organizations maintain no inventories for sale. </li></ul></ul><ul><ul><li>Merchandising organizations only have one inventory account. </li></ul></ul><ul><ul><li>Manufacturing organizations use materials, work in process and finished goods inventory accounts. </li></ul></ul>
  42. 42. Merchandisers <ul><li>Merchandisers purchase goods already manufactured, and resell them. </li></ul><ul><ul><li>They accumulate the purchased cost of goods. </li></ul></ul><ul><ul><li>They have only one type of inventory (merchandise inventory.) </li></ul></ul>
  43. 43. Merchandising Organization <ul><li>Beginning Merchandise Inventory </li></ul><ul><li>+ Net Cost of Goods Purchased </li></ul><ul><li>- Ending Merchandise Inventory </li></ul><ul><li>= Cost of Goods Sold </li></ul>
  44. 44. Manufacturers <ul><li>Manufacturers design and manufacture products for sale. </li></ul><ul><ul><li>They must accumulate the costs of manufacturing products. </li></ul></ul><ul><ul><li>Their inventory consists of materials, work in process, and finished goods. </li></ul></ul>
  45. 45. Manufacturing Organization Beginning Finished Goods Inventory + Cost of Goods Manufactured - Ending Finished Goods Inventory = Cost of Goods Sold
  46. 46. Service Companies <ul><li>Service Companies’ Cost of Sales = Net Cost of Services Sold </li></ul>
  47. 47. Manufacturing Versus Merchandising <ul><li>Both types of organizations report: </li></ul><ul><ul><li>The cost of unsold goods on the balance sheet. </li></ul></ul><ul><ul><li>The cost of goods sold on the income statement. </li></ul></ul>
  48. 48. <ul><li>Q. What three inventory accounts does a manufacturer maintain? </li></ul><ul><li>A. 1. Materials Inventory. </li></ul><ul><li>2. Work in Process Inventory. </li></ul><ul><li>3. Finished Goods Inventory. </li></ul>Discussion
  49. 49. Standards of Ethical Conduct OBJECTIVE 7 Identify the standards of ethical conduct for management accountants.
  50. 50. Ethical Conflicts <ul><li>May occur because different constituencies have different requirements. </li></ul><ul><li>Management must balance the needs of external partners. </li></ul>
  51. 51. Ethical Standards <ul><li>The management accountant’s ethical standards relate to: </li></ul><ul><ul><li>Competence. </li></ul></ul><ul><ul><li>Confidentiality. </li></ul></ul><ul><ul><li>Integrity. </li></ul></ul><ul><ul><li>Objectivity. </li></ul></ul>
  52. 52. Competence Standards <ul><li>Develop knowledge and skills on an ongoing basis. </li></ul><ul><li>Perform duties in accordance with relevant laws and technical standards. </li></ul><ul><li>Prepare complete and clear reports after appropriate analysis of information. </li></ul>
  53. 53. Confidentiality Standards <ul><li>Refrain from disclosing confidential information. </li></ul><ul><li>Make sure that subordinates refrain from disclosing confidential information. </li></ul><ul><li>Refrain from using confidential information for unethical or illegal advantage. </li></ul>
  54. 54. Integrity Standards <ul><li>Avoid actual or apparent conflicts of interest. </li></ul><ul><li>Avoid activities that would prejudice one’s ability to carry out duties ethically. </li></ul><ul><li>Refuse any gift or favor that might influence one’s actions. </li></ul><ul><li>Avoid activities that could discredit the profession. </li></ul>
  55. 55. Integrity Standards <ul><li>Avoid activities that could threaten the organization’s legitimate and ethical objectives. </li></ul><ul><li>Acknowledge any professional limitations relative to the performance of one’s job. </li></ul><ul><li>Communicate both favorable and unfavorable information and opinions. </li></ul>
  56. 56. Objectivity Standards <ul><li>Communicate information fairly and objectively. </li></ul><ul><li>Disclose fully all relevant information to users. </li></ul>
  57. 57. Resolution of Ethical Conflict <ul><li>Follow organizational policies. </li></ul><ul><li>If these do not resolve the conflict: </li></ul><ul><ul><li>Discuss with the immediate superior, or next higher level authority involved. (Do not communicate with external parties.) </li></ul></ul><ul><ul><li>Clarify issues with an objective advisor. </li></ul></ul><ul><ul><li>Consult your own attorney about legal obligations and rights. </li></ul></ul><ul><ul><li>If ethical issues cannot be resolved, consider resignation. </li></ul></ul>
  58. 58. <ul><li>Q. Management accountants must adhere to what four facets of ethical conduct? </li></ul><ul><li>A. 1. Competence. </li></ul><ul><li>2. Confidentiality. </li></ul><ul><li>3. Integrity. </li></ul><ul><li>4. Objectivity. </li></ul>Discussion
  59. 59. <ul><li>Define management accounting and distinguish between management accounting and financial accounting. </li></ul><ul><li>Explain the management cycle and its connection to management accounting. </li></ul><ul><li>Identify the management philosophies of continuous improvement and discuss the role of management accounting in implementing those philosophies. </li></ul>OK, LET’S REVIEW . . .
  60. 60. CONTINUING OUR REVIEW . . . <ul><li>Define performance measures, recognize the uses of those measures in the management cycle, and prepare an analysis of nonfinancial data. </li></ul><ul><li>Identify the important questions a manager must consider before requesting or preparing a management report. </li></ul>
  61. 61. AND FINALLY . . . <ul><li>Compare accounting for inventories and cost of goods sold in merchandising and manufacturing organizations. </li></ul><ul><li>Identify the standards of ethical conduct for management accountants. </li></ul>

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