Chapter 15. Distinguish management accounting from financial accounting.
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Transcript of Chapter 15. Distinguish management accounting from financial accounting.
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Chapter 15
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Distinguish management accounting from financial accounting
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Managers
Suppliers
Government
Creditors
Owners
Customers
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Stakeholders Provide Management is accountable for:
Operating activities
Suppliers Products & services
?
Employees Time & expertise
?
Customers Cash ?
Investing activities
Suppliers Long-term assets
?
Management’s Accountability to Management’s Accountability to StakeholdersStakeholders
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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
?
Management’s Accountability to Management’s Accountability to StakeholdersStakeholders
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Financial Accounting Management Accounting
For external reporting For internal planning and control
6Copyright (c) 2009 Prentice Hall. All rights reserved.
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Management Accounting
Financial Accounting
Primary users Internal – the company’s managers
External – investors and creditors
Purposes of information
Help managers plan and control operations
Help with investment and credit decisions
Focus and time dimension
Relevance of information; focus on the future
Relevance and reliability of information; focus on the past
Type of report Internal reportsNo audit needed
Financial statements prescribed by GAAPAudit by CPAs
Scope of information
Detailed reports on a weekly or daily basis
Summarized reports quarterly and/or annually
Behavioral Concern about how reports affect employee behavior
Concern about adequate disclosure
Copyright (c) 2009 Prentice Hall. All rights reserved.
Management versus Financial Management versus Financial AccountingAccounting
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Identify trends in the business environment and the role of management accountability
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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
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Seek to provide services Simplest accounting All costs are period costs
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Net incomeNet income
RevenuesRevenues ExpensesExpenses
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Classify costs and prepare an income statement for a merchandising company
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Resell products purchased from suppliers Keep an inventory of products Cost of goods sold is a major expense
14Copyright (c) 2009 Prentice Hall. All rights reserved.
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Includes cost to purchase goods plus freight-in
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Beginning inventory
Plus: Purchases, net
Plus: Freight-in
Less: Ending inventory
Equals: Cost of goods sold
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16Copyright (c) 2009 Prentice Hall. All rights reserved.
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Net sales revenue $$$$Cost of goods sold $$$$Gross profit $$$Operating expenses $$$Operating income $$$Other income (expense) $$Net income $$$
Any CompanyIncome Statement
For the year ended December 31, 2011
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Net sales revenue $128,500Cost of goods sold: Beginning inventory $7,400 Plus: Purchases 62,800 Less: Ending inventory (6,000) Cost of goods sold 64,200 Gross profit 64,300 Selling and administrative expense 45,400 Net income $18,900
Gonzales Brush CompanyIncome Statement
For the year ended December 31, 2011
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Cost of goods sold
Units soldUnit cost
of one brush
$64,2005,700
units sold$ ?
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Classify costs and prepare an income statement and statement of cost of goods
manufactured for a manufacturing company
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Use labor, plant, supplies and facilities to convert raw materials into finished products
Three kinds of inventory
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Materials inventory
Work in process
inventory
Finished goods
inventory
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Direct costs Indirect costs
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Cost object: Anything for which managers want a separate measurement of cost
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23Copyright (c) 2009 Prentice Hall. All rights reserved.
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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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Net sales revenue $$$$$$$Cost of goods sold: Beginning finished goods inventory $$$$$$ Plus: Cost of goods manufactured $$$$$ Less: Ending finished goods inventory ($$$$$) Cost of goods sold $$$$$$Gross profit $$$$$$Selling and administrative expense $$$$$Operating income $$$$$$
Any Manufacturing CompanyIncome Statement
For the year ended December 31, 2011
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Type of company Inventoriable product costs
Period costs (Expenses)
Service company None Salaries, depreciation, utilities, advertising, insurance, property taxes
Merchandising company
Purchases plus freight in
Salaries, depreciation, utilities, advertising, insurance, property taxes and delivery expense
Manufacturing company
Direct materials, Direct labor and manufacturing overhead
Office salaries, depreciation, utilities, advertising, insurance, property taxes on office,selling expenses
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MaterialsInventory
FinishedGoods
Inventory
Sales
Cost ofGoods Sold
INCOME STATEMENT
Operating Expenses
BALANCE SHEET
=Operating Income
Whensalesoccur
-
-
Work inProcessInventory
PeriodCosts
Purchases of materials
Direct labor & manufacturing overhead
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Beginning Work in process inventory $$$Add: Direct materials used Beginning direct materials inventory $$$ Plus: Direct materials purchased $$$ Less: Ending direct materials inventory ($$$) Direct materials used $$$Direct labor $$$Manufacturing overhead $$$Total manufacturing costs incurred during the year $$$Total manufacturing costs to account for $$$Less: Ending Work in process inventory $$$Cost of goods manufactured $$$
Any Manufacturing CompanySchedule of Cost of Goods ManufacturedFor the year ended December 31, 2011
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Beginning Work
in process
Direct materials used
Direct materials used
Direct labor
Manufacturing overhead
Ending Work in process
Total manufacturi
ng costsCost of goods manufactured
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Direct materials inventory
Work in process inventory
Finished goods inventory
Beginning inventory
Beginning inventory
Beginning inventory
+ Purchases and freight-in
+ Direct materials used
+ Cost of goods manufactured
= Direct materials available for use
+ Direct labor = Cost of goods available for sale
+ Manuf. overhead
- Ending inventory - Ending inventory - Ending inventory
= Direct materials used
= Cost of goods manufactured
= Cost of goods sold
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Beginning Work in process inventory $6,000Add: Direct materials used 15,000 Direct labor 7,000 Manufacturing overhead 18,000 Total manufacturing costs incurred during the year 40,000 Total manufacturing costs to account for 46,000 Less: Ending Work in process inventory (3,000) Cost of goods manufactured 43,000$
Max-Fli Golf CompanySchedule of Cost of Goods ManufacturedFor the year ended December 31, 2010
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Use reasonable standards to make ethical judgments
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Institute of Management Accountants (IMA) developed standards to help meet ethical challenges
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