Management Accounting

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Management Accounting

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Management Accounting

  1. 1. Introduction to Management Accounting<br />Prepared by : Amir Saif<br />1<br />
  2. 2. Management Accountability<br />Responsibility to stakeholders of the company<br />Owners<br />Creditors<br />Suppliers<br />Employees<br />Customers<br />Prepared by : Amir Saif<br />2<br />
  3. 3. Objective 1<br />Distinguish between financial accounting and management accounting<br />Prepared by : Amir Saif<br />3<br />
  4. 4. Management Accounting and Financial Accounting<br />Primary Users<br />Financial<br />External<br />Investors, Creditors, Government authorities<br />Management <br />Internal <br />Managers of the business<br />Prepared by : Amir Saif<br />4<br />
  5. 5. Management Accounting and Financial Accounting<br />Purpose of Information<br />Financial<br />Help investors and creditors make investment and credit decisions<br />Management<br />Help managers plan and control business operations<br />Prepared by : Amir Saif<br />5<br />
  6. 6. Management Accounting and Financial Accounting<br />Focus and Time Dimension of the Information<br />Financial <br />Relevance and reliability<br />Focus on the past<br />Management<br />Relevance <br />Focus on future<br />Prepared by : Amir Saif<br />6<br />
  7. 7. Management Accounting and Financial Accounting<br />Type of Report<br />Financial<br />Financial statements <br />Audited by Internal Auditor<br />Management<br />Internal reports restricted by cost-benefit analysis<br />No audit from Internal Auditor<br />Prepared by : Amir Saif<br />7<br />
  8. 8. Management Accounting and Financial Accounting<br />Scope of Information<br /> Financial Accounting<br />Summary reports primarily on the company as a whole<br />On quarterly or annual basis<br /> Management Accounting<br />Detailed reports on parts of the company<br />Often on daily or weekly basis<br />Prepared by : Amir Saif<br />8<br />
  9. 9. Management Accounting and Financial Accounting<br />Behavioral <br />Financial<br />Concern about adequacy of disclosure<br />Behavioral implications are secondary<br />Management<br />Concern about how reports will affect employee behavior<br />Prepared by : Amir Saif<br />9<br />
  10. 10. Objective 2<br />Identify trends in the business environment and the role of management accountability<br />Prepared by : Amir Saif<br />10<br />
  11. 11. Today’s Business Trends<br />Shift toward a service economy<br />Global competition<br />Time-based competition<br />Advanced information systems<br />E-Commerce<br />Just-in-Time management<br />Total Quality Management<br />Prepared by : Amir Saif<br />11<br />
  12. 12. Objective 3<br />Classify costs and prepare an income statement for a service company<br />Prepared by : Amir Saif<br />12<br />
  13. 13. Service Company<br />Simplest accounting<br />All costs are period costs<br />Operating income = <br /> Service revenue – operating expenses<br />Prepared by : Amir Saif<br />13<br />
  14. 14. Prepared by : Amir Saif<br />14<br />Saif Grooming<br />Income Statement<br />For the Month Ended July 31, 2007<br />Service revenue $15,000<br />Operating expenses:<br /> Wages $4,800<br /> Grooming supplies 1,200<br /> Building rent 1,000<br /> Utilities 250<br /> Depreciation, equipment 100 7,350<br />Operating income $7,650<br />Cost to groom one person = $7,350/600 Persons = $12.25<br />
  15. 15. Objective 4<br />Classify costs and prepare an income statement for a <br />Trading company<br />Prepared by : Amir Saif<br />15<br />
  16. 16. Trading Company<br />Purchase inventory from suppliers and resell to customers<br />Has both period costs and inventoriable product costs<br />Prepared by : Amir Saif<br />16<br />
  17. 17. Trading Company – Income Statement<br /> Sales<br />- Cost of goods sold<br /> Gross profit<br />- Operating expenses<br /> Operating income<br />Prepared by : Amir Saif<br />17<br />
  18. 18. Trading Company – Income Statement<br /> Cost of goods sold:<br /> Beginning inventory<br />+ Purchases<br />+ Freight-in<br /> Cost of goods available for sale<br />- Ending inventory<br /> Cost of goods sold<br />Prepared by : Amir Saif<br />18<br />
  19. 19. Prepared by : Amir Saif<br />19<br />Amir’s Brush Company<br />Income Statement<br />For Year Ended December 31, 2009<br />Service revenue $125,000<br />Cost of goods sold:<br /> Inventory, January 1, 2009 $7,000<br /> Purchases 63,000<br /> Goods available for sale $70,000<br /> Inventory, December 31, 2009 (5,000)<br /> Cost of goods sold 65,000<br />Gross profit $60,000<br />Selling and administrative expenses 45,000<br />Operating income $15,000<br />
  20. 20. Prepared by : Amir Saif<br />20<br />Unit cost for one brush: <br /> Cost of goods sold $65,000<br /> Selling and administrative expenses 45,000<br /> Total cost $110,000<br />$110,000 / 5,800 brushes = $18.97<br />
  21. 21. Objective 5<br />Classify costs and prepare an income statement for a manufacturing company<br />Prepared by : Amir Saif<br />21<br />
  22. 22. Manufacturing Companies<br />Use labor, plant, and equipment to convert raw materials into finished products<br />Materials inventory<br />Work in process inventory<br />Finished goods inventory<br />Prepared by : Amir Saif<br />22<br />
  23. 23. Product Costs<br />Direct materials<br />Direct labor<br />Manufacturing overhead<br />Prepared by : Amir Saif<br />23<br />Direct Costs<br />Indirect Costs<br />
  24. 24. Cost Object<br />Anything for which managers want a separate measurement of cost<br />Direct cost – can be directly traced to cost object<br />Prepared by : Amir Saif<br />24<br />
  25. 25. Manufacturing Overhead<br />Indirect costs related to manufacturing operations<br />Generally all manufacturing costs that are not direct costs<br />Indirect materials<br />Indirect labor<br />Prepared by : Amir Saif<br />25<br />
  26. 26. Manufacturing Companies – Income Statement<br />Sales<br />- Cost of goods sold<br /> Gross profit<br />- Operating expenses<br /> Operating income<br />Prepared by : Amir Saif<br />26<br />
  27. 27. Manufacturing Company – Income Statement<br /> Cost of goods sold:<br /> Beginning finished goods inventory<br />+ Cost of goods manufactured<br /> Cost of goods available for sale<br />- Ending finished goods inventory<br /> Cost of goods sold<br />Prepared by : Amir Saif<br />27<br />
  28. 28. Manufacturing Company – Income Statement<br /> Cost of goods manufactured:<br /> Beginning work in process inventory<br />+ Direct materials used<br />+ Direct labor<br />+ Manufacturing overhead<br />Total manufacturing costs to account for<br />- Ending work in process inventory<br /> Cost of goods manufactured<br />Prepared by : Amir Saif<br />28<br />
  29. 29. Manufacturing Company – Income Statement<br /> Direct materials used:<br /> Beginning materials inventory<br />+ Purchases of direct materials<br />+ Freight in<br /> Materials available for use<br />- Ending materials inventory<br /> Direct materials used<br />Prepared by : Amir Saif<br />29<br />
  30. 30. Manufacturing CompaniesProduct & Period Costs<br />Prepared by : Amir Saif<br />30<br />INCOME STATEMENT<br />BALANCE SHEET<br />Inventoriable<br /> Product Costs<br />Sales<br />when<br />sales<br />occur<br />Materials<br />Inventory<br />Finished<br />Goods<br />Inventory<br />-<br />Cost of<br />Goods Sold<br />-<br />Work in<br />Process<br />Inventory<br />Operating <br />Expenses<br />Period<br />Costs<br />=<br />Operating Income<br />
  31. 31. Manufacturing CompaniesInventory Accounts<br />Prepared by : Amir Saif<br />31<br />Materials Inventory<br />Beginning inventory<br />Materials used<br />Purchases & freight<br />Ending inventory<br />
  32. 32. Manufacturing CompaniesInventory Accounts<br />Prepared by : Amir Saif<br />32<br />Work in Process <br />Inventory<br />Beginning inventory<br />Cost of goods<br />manufactured<br />Materials used<br />Direct labor<br />Manufacturing overhead<br />Ending inventory<br />
  33. 33. Manufacturing CompaniesInventory Accounts<br />Prepared by : Amir Saif<br />33<br />Finished Goods <br />Inventory<br />Income Statement<br />Beginning inventory<br />Cost of goods<br />sold<br />Cost of goods<br />manufactured<br />Ending inventory<br />
  34. 34. Prepared by : Amir Saif<br />34<br />TAZ Company<br />Statement of Cost of Goods Manufactured<br />For Year Ended December 31, 2008<br />Beginning work in process inventory $100,000<br />Direct materials used:<br /> Beginning materials inventory $50,000<br /> Purchases of direct materials 155,000<br />Materials available for use $205,000<br /> Ending materials inventory (25,000) 180,000<br />Direct labor 120,000<br />Manufacturing overhead (see schedule) 70,000<br />Total manufacturing costs to account for $470,000<br />Ending work in process inventory (65,000)<br /> Cost of goods manufactured $405,000<br />
  35. 35. Prepared by : Amir Saif<br />35<br />Schedule of manufacturing overhead costs<br />Depreciation, plant building and equipment $15,000<br />Insurance on plant 20,000<br />Repairs and maintenance, plant 5,000<br />Indirect labor 30,000<br /> Total manufacturing overhead $70,000<br />
  36. 36. 2. $405,000 / 3,000 lamps = $135<br />Prepared by : Amir Saif<br />36<br />
  37. 37. Objective 6<br />Use reasonable standards to make ethical judgments<br />Prepared by : Amir Saif<br />37<br />
  38. 38. Ethical Standards<br />Standards of Ethical Conduct for Management Accountants<br />Competence<br />Confidentiality<br />Integrity<br />Objectivity<br />Prepared by : Amir Saif<br />38<br />
  39. 39. Thank you for your time and Patience.www.amirsaiftaz.blogspot.comamirsaiftaz@gmail.com<br />Prepared by : Amir Saif<br />39<br />

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