This document discusses controlling as a management function that involves ensuring employee performance aligns with organizational standards through monitoring, comparing, and correcting actions. It describes controlling as both a corrective and foreseeing activity. The document outlines objectives to discuss the nature of controlling, link planning to controlling, and distinguish control methods and systems. It provides definitions for terms like standard and discusses the importance of management control for areas like working capital. The document also describes the typical control process of establishing standards, measuring performance, comparing to standards, and taking corrective action. It discusses accounting tools like the balance sheet, income statement, and cash flow statement that are used for organizational performance control and financial analysis. Finally, it covers quantitative and non-quantitative control

1. CONTROLLING

2. OBJECTIVES:
1. Discuss the nature of controlling;
2. Describe the link between planning and
controlling; and
3. Distinguish control methods and systems.

3. CONTROLLING
 a management function involves ensuring the
work performance of the organization’s
members are aligned with the organization’s
values and standards through monitoring,
comparing, correcting their actions.

4.  Controlling was associated with the concept of
just being a corrective action. Present-day
Management, however, applies it as a foreseeing
activity that sets standards in determining actual
performance to correct previous decisions and
actions. Therefore, management must focus on
management control and the control process.

5. STANDARD
Any established measure of extent,
quantity, quality, or value

6. Importance of Management Control
 Management Control makes sure that the firm’s
operating cash flow is sufficient, efficient, and, if
possible, profitable when invested.
 Working Capital, when properly controlled, must
be adequate enough such as financing,
inventories, credit payments to suppliers,
reinvestment of cash surplus, and salaries of
employees or, in general, maintaining an
acceptable capital structure.

7. Importance of Management Control
 Spending without thinking of how it could be regained
in the future could put any starting business or even a
well established one in jeopardy. There should be a
continuous monitoring of the organization’s activities
followed by corrective actions based on previously
planned programs of action. Moreover, tasks should
be completed with less errors. This could be achieved
by comparing tasks with previously set standards or
with competitor’s standards or standard prevailing in
a particular industry setting.

8. The Control Process
 Control techniques used for controlling financial
resources, office management, quality assurance,
and others are essentially the same.
 The typical control process involves establishing
standards, measuring and reporting actual
performance, and comparing it with standards,
and taking action.

9. The Control Process
 Establishing standards means setting criteria for
performance. Managers must identify priority
activities that have to be controlled, followed by
determining how these activities must be properly
sequenced. In doing so, managers will be able to set
key performance standards that need to be achieved.
The value chain, or the proper sequencing of
activities needed to convert the company’s raw
materials into finished products, is a valuable
instrument for helping managers determine and
establish key performance standards.

10. The Control Process
 Measuring and reporting actual performance and comparing
it with set standards is essentially the monitoring of
performance. To be able to do this, managers must develop
appropriate information systems which will help them identify,
collect, organize, and disseminate information.
 Managers are able to control facts and figures called data, and
information, which have been given meaning and considered to
have value. Analyses of data/information gather measure actual
performance and comparing it with set standards serves as a
mean for detecting deviations. Deviations must be revealed as
early as possible in order to correct them.

11. The Control Process
 Taking action involves the correction of
deviations from set standards. This activity
clearly shows the control function of
management. Managers may rectify deviations by
modifying their plans or goals, by improving
training of employees, by firing inefficient
subordinates, or by practicing more effective
leadership techniques.

12. Definition of terms:
 Double entry accounting- accounting strategy of
some firms which requires the preparation of two
different accounting reports, one for internal use
and another for external use.
 Dual entry- the process of journalizing with debit
and credit entries
 Liquidity- the organization’s ability to meet
short-term obligations

13. The Link between Planning and
Controlling
 Control is integrated planning.
 Planning involves a thorough process which is essential to
the creation and refinement of a blue print or its
integration with other plans that may combine forecasting
of developments in preparation for future scenarios.
 Pro forma financial statement which serves as a forecast
of the balance sheet, income statement, and cash flow
statement in order to make projections.

14. The Link between Planning and
Controlling
 As smart (2013) cited, “by making projections of sales
volume profits, fixed assets requirements, working capital
needs, and sources of financing, the firm can predict any
liquidity problems with enough lead time to have additional
financing sources available when needed”.
 Shim et al. (2012), emphasized that “any CFO (chief
financial offer) must prepare short-term, company-wide, or
division-wide planning reports.

15. Strategic Planning Strategic Control
Tactical Planning Tactical Control
Operational Control
Operational
Planning

16.  Specialized planning and control reports may include
effects of cost reduction programs, production issues in
cost or quality terms, cash flow plans for line-of-credit
agreements, evaluation of pension or termination cost in
plant costing, contingency and downsizing plans, and
appraisal of risk factors in long term contracts.

17. The Balance Sheet
 Balance sheet is a financial statement which is defined by
most accounting books as the “snapshot” of any entity’s
financial condition because it presents the financial
balances of a particular period.
It follows a pro forma accounting entry:
A = L + C
A = equivalent to the aggregate summation of liabilities
L = capital
C = owner’s equity

18. Assets
Cash on hand x x x x
Marketable Securities xxxxx
Prepaid Expenses xxxxx
Accounts Receivable xxxxx
Total Current Assets xxxxx
Property and Equipment xxxxx
Land xxxxx
Total Fixed Assets xxxxx

19. Liabilities and Equities
 Accounts Payable x x x x
 Accruals x x x x
 Total Current Liabilities x x x x
 Long-term Debts x x x x
 Mortgages x x x x
 Total Long-term Liabilities x x x x
 Total Liabilities x x x x

20. For example
 For this set up, with the assumption that the capital is all
in cash, the latter amount may diminish depending on
what was spent for. Assuming you would purchase
equipment to be used in the business amounting to
P100,000youd would now have:

21. Assets Liabilities and capital
Cash P400,000
Equipment P100,000
Total Assets P500,000
Owner’s Capital
P500,000
Total Liabilities and
capital
P500,000

22.  One has to note that it did no change the total amount of
capital which is P500,000 since it was just deducted from
cash. The pro forma accounting entry which is Assets=
Liabilities plus capital is still intact and balanced on both
sides. Further, if you placed orders or suppliers on credit
terms of for future payments amounting to P30,000:

23. Assets Liabilities and capital
Cash P400,000
Equipment p100,000
Suppliers P30,000
Total Assets P530,000
Owner’s Capital
P500,000
Accounts Payable
P30,000
Total liabilities and capital
P530,000

24. Income Statement
 The Income Statement is also known as the profit
and loss statement, revenue and expenses
statement, statement of financial performance,
or earnings statement. It displays the cost and
expenses charged to recognize revenues in a
specific period.

25. Cash flow Statement
 Without adequate cash for the timely payment of
obligation, funding operations and growth, and for
compensating owners, the firm will fail. The statement of
cash flow summarizes the inflow and outflow of cash
during a given period. Inflow Activities are those that
result in providing the firm of sources of funds, while
Outflows result in cash leaving the firm due to
disbursements or expenses that utilize cash.

26.  Sales or gross revenues
 Net income
 Gross profit
 Income from continuing/discontinuous operations
 Usual income statement items
 Tax provision
 Material changes in financial positions

27. Summaries of Significant Accounting
Policies and Assumptions
 The management’s intent of preparing the
prospective financial statements should be stated
and it must be mentioned that prospective results
may not materialize.
 It should be clearly stated that the assumption
used by management are based on information
and circumstances that existed at the time the
financial statements were prepared.

28. Organizational Performance Control
 All managers must know which measures will give
them data and information about overall
organizational performance control.

29. Organizational Performance Control
 Organizational productivity is the amount of
goods or services produced (output) divided by
the inputs needed to produce the said output.
 Output may be measured by the sales income
which an organization gains when goods are sold.
 Inputs, on the other hand, may be measured by
the amount spent on acquiring and transforming
resources into outputs.

30. Organizational Performance Control
 Organizational effectiveness is a measure of the
organizational needs and how well these said
goals are being attained.
 Rankings in industry is a way commonly used by
managers to measure organizational performance.
Being ranked high, middle, or low indicates the
company’s performance in comparison with
others.

31. Other Performance Controls in
Organizations
 Computer-based control system are common in
many companies today. Managers have easy
access to their firm’s databases which could
provide meaningful information of performance
evaluation.

32. Other Performance Controls in
Organizations
 Bureaucratic control makes use of strict rules,
regulations, policies, procedures, and orders from
formal authority. Negative performance education
is given to human resources who do not comply
with the said control measures.

33. Control Method and Systems
 Control methods are techniques used for
measuring an organization’s financial stability,
efficiency, effectiveness, production output, and
organization member’s attitudes and morale.

34. Other Performance Controls in
Organizations
 Clan control is based on compliance with norms,
values, expected behavior related to the firm’s
organizational culture, and other cultural
variables of the country where the company is
located.

35. Control Method and Systems
 Control methods are techniques for measuring an
organization’s financial stability, efficiency,
effectiveness, production output, and
organization member’s attitudes and morale.
Therefore, the challenge for present-day
managers is to devise control methods and
systems that are aligned and consistent will help
attain these concerns.

36. Methods of Control
 A firm may apply control techniques or methods
which are either quantitative or quantitative.

37. Quantitative Methods
 Quantitative Methods make use of data and
different quantitative tools for monitoring and
controlling production output. Budgets and audits
are among the most common quantitative tools.
The most widely recognized quantitative tool is
the chart.

38. Quantitative Methods
 Budgets. The budget remains the best known
control device. Budget and control are, in fact,
synonymous. An organization’s budget is an
expression in financial terms of a plan for meeting
the organization’s

40. Quantitative Methods
 Audits. Internal auditing involves the
independent review and evaluation of the
organization’s non-tactical operations, such as
accounting and finances. As a management tool,
the audit measures and evaluates the
effectiveness of management control.

41. Non-Quantitative Method
 Non-Quantitative Methods refer to the overall
control of performance instead of only those of
specific organizational processes. These methods
use too such as inspections, reports , direct
supervision, and on-the-spot checking and
performances evaluation or counseling to
accomplish goals.

42. Non-Quantitative Method
 Feedforward control prevents problem because
managerial action is taken before the actual
problem occurs.
 Current control take place while work activity is
happening. The best example of this type of
control is direct supervision or management by
walking around.

43. Non-Quantitative Method
 Feedback control is control that take place after
the occurrence of the activity. It is
disadvantageous because by the time the
manager receives the information, the problem
had already occurred.
When the above three control methods are
compared, managers choose the feedforward
method as the most desirable because of it’s
preventive action.

44. Non-Quantitative Method
 Employee discipline is a control challenge for
managers. Enforcing discipline in the workplace is
not easy.
 Project management control ensures that the
task of getting a project’s activities done on time,
within the budget and according to specifications,
is successfully carried out.

45. Application of Management Control in
Accounting and Marketing Concepts and
Techniques
 Management control in accounting and finance
is the control that make use of the balance sheet,
income statement, and cash flow statement to
analyze and examine financial statements in
order to determine the company’s financial
soundness and viability, as well as financial ratios
to determine the company’s stability.

46. Definition of Terms:
 Strategic Control- a systematic monitoring at
control points in strategic plans that may tend to
change in the organization’s strategies.
 Macroeconomic Environment- business
environment that includes or considers economic
aggregates such as national income, total volume
of savings, and money supply.

48. Accounting/Financial Control Ratios
 The goal business is to gain profit. In order to
achieve this, managers need accounting/financial
controls. Managers must also analyze the
organization’s financial condition, which is done
with the help of the following financial ratios:

49. Accounting/Financial Control Ratios
 Liquidity ratio tests the organization’s ability to
meet short term obligations; it may also refer to
acid tests done when inventories turn over slowly
or more difficult to sell.
Current ratio=current assets ÷ current liabilities

50. Accounting/Financial Control Ratios
 Leverage Ratio- determines if the organization is
technically insolvent, meaning that the
organization’s financing is mainly coming from
borrowed money or from the owner’s
investments.
Debt-to-assets ratio = total debt ÷ total assets

51. Accounting/Financial Control Ratios
 Activity Ratio- determines if the organization is
carrying more inventory than what it needs; the
higher the ratio, the more efficiently inventory
assets are being used.
inventory turnover = cost of goods sold ÷ average inventory

52. Accounting/Financial Control Ratios
 Profitability Ratio- determines the profits that
are being generated;
Net profit after taxes ÷ total sales
Or it measures the efficiency of assets to generate
profit.
return on investment = net profit after taxes ÷ total sales

53. Accounting/Financial Control Ratios
 In addition to the above ratios, assets
management is also practice to achieve
organizational goals. Assets management is the
ability to use resources efficiently and operate at
minimum cost.
inventory turnover = sales ÷ average inventory

54. Strategic Control
 Strategic Control a systematic monitoring at
control points that leads to change in
organization’s strategies based on assessments
done on the said strategic plans.

55. Benchmarking
 Benchmarking is an approach and process of
measuring a company’s own services and practices
against those of recognized leaders in the industry
in order to identify areas for improvement.
 Weihrich and Koontz (2005) gave three types of
benchmarking:

56. Benchmarking
a) Strategic Benchmarking which compares various
strategies and identifies the key strategic elements
of success;
b) Operational Benchmarking which compares relative
costs or possibilities for product differentiation; and
c) Management Benchmarking which focuses on
support functions such as market planning and
information systems, logistics, and human resource
management, among others.

57. Benchmarking
 The benchmarking process begins with
determining which company functions are to be
benchmarked and key performance indicators to
be measured.
 Corrective Actions are taken to close the gap
between the organization and the best-in-class
companies.

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59. Role of Budgets in Planning and
Control
An organization’s ability to have a good control system is
also dependent on its budget process.
Budgets are plans to monitor, control, and implement the
resource of the firm on its operation based on its
objectives or goals.
Adjustments are made by top-level management on a
periodic basis, if necessary, to remedy conflicts, difficult
situations, or unrealistic settings or when unforeseen
events transpire.

60. Role of Budgets in Planning and
Control
 a Fixed Budget allocates a fixed amount of resources
for a specific purpose. Meanwhile, a flexible or
variable budget allows allocation of resources to
change depending on different levels of activity in the
organization.
 According to Sawyers et al (2003) in the book
Managerial Accounting, budgeting services as an
integral part of a manager’s planning, operating, and
control activities, illustrated as:

61. Planning
OperatingBudgeting
Control

62. Role of Budgets in Planning and
Control
 Planning is the initial step and it includes the
development of the firm’s objectives and creation
of the budget.
 Operating takes on the decision-making that is
guided by budgeting.
 The Control Process then checks and guarantees
whether the set objectives are accomplished.

63. Role of Budgets in Planning and
Control
 Budgeting is the responsibility and activity of
management which requires extensive planning
throughout the organization’s entire units and
departments. Producing a budget requires time,
prudence, and diligence.
 Budget Preparation may either utilize historical
budgeting or zero based-budgeting.

64. Role of Budgets in Planning and
Control
 In every organization, there must only be one
concrete and recognized budget for a certain
period of time.
 The sales department or the marketing division
may create its sales budget for purchases and
selling expenses to eventually determine the
value of actual products or services to be sold.

65. Role of Budgets in Planning and
Control
 The operations and production departments
usually generate short-term budgets, which
customarily cover less than a year since it must
take into account economic trends such as
inflation, costs, and personal spending for desired
inventory and final production.
 As Sawyers et al. presented, a basic summary of a
cash budget may have the following format:

66. Role of Budgets in Planning and
Control
Beginning Cash Balance
+ Cash Receipts
= Total Cash Available
- Cash Disbursements
= Cash Balance before borrowing/repayment
+/- Borrowing from/repayment of line credit
- Interest of line of credit
= Ending Cash Balance

67. Steps toward Better Budget-making
 The budget may be improved upon to address the
needs of the organization and consider the input
of all concerned. Below are the steps in
improving the budget:
 Collaborate and communicate with organization
administration and selected members so that the
budget becomes more acceptable to all.

68. Steps toward Better Budget-making
 Practice flexibility as the budget adapts to the
organization’s needs.
 Relate budget to company goals since their
achievement is the primary objective/goal of the
firm; deviation from goals will prolong
achievement and will no be good for the firm’s
stability.

69. Steps toward Better Budget-making
 Coordinate the budget with all the company
departments so that they may be able to make
use of the budget allocations given to their
respective units.
 Use computer software or applications when
needed to facilitate accurate computations and
proper dissemination of information related to
the budget.