Cost Accounting

Chapter 1

The Accountant Role in the Organization

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2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
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Upon completion of this chapter, you should be able to understand:

1- What information does cost accounting provide? 2- Describe how cost accounting supports management accounting and financial accounting. 3- Understand how management accountants affect strategic decisions. 4- Describe three ways management accountants support managers. 5- Understand what professional ethics mean to management accountants. CLO # 1
2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
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Learning Objective 1

What information does cost accounting provide?

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2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
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The major purpose of accounting systems

Accounting systems process the data of the economic events and transactions that have occurred into information that is helpful to users. Processing economic transaction require collecting, categorizing, summarizing, and analyzing accounting systems provide information such as financial statements and performance report
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2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

Learning Objective 2

Describe how cost accounting supports management accounting and financial accounting.
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2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
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Management Accounting
It measures and reports financial and nonfinancial information that helps managers make decisions to fulfill the goals of an organization.

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2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
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Financial Accounting
Its focus is on reporting to external parties. It measures and records business transactions.

It provides financial statements based on generally accepted accounting principles.

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2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
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Cost Accounting
It provides information for both management accounting and financial accounting. It measures and reports financial and nonfinancial data.

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2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
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Cost Management
It describes the activities of managers in planning and control of costs. It includes the continuous reduction of costs. It is a key part of general management strategies and their implementation.
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2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
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Differences between Management & Financial Accounting Management Accounting 1- reporting to internal parties 2- Emphasis on the future 3- Not restricted by GAAP Financial Accounting 1- reporting to external parties 2- Emphasis on the past 3- restricted by GAAP

CLO # 1
2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
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Learning Objective 3

Understand how management accountants affect strategic decisions.

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2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
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Roles performed by management accountant

Management accountants contribute to the companys decisions about strategy Planning, and control, by: 1- Problem solving: comparative analysis for decisions making of the several alternatives available, which is the best? 2- Scorekeeping: accumulate data and reporting results to all levels of management describing how the organization is doing 3- Attention directing: helping managers to focus on opportunities and problems.

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2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
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Learning Objective 4

Describe three ways management accountants support managers.

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2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
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Key Guidelines
1. Cost-benefit approach

2. Full recognition of behavioral as well as technical considerations

3. Using different costs for different purposes

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2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
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Cost-Benefit Approach
A cost-benefit approach should be used in order to spend resources if they promote decision making that better attains organization goals in relation to the costs of those resources.

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2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
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Behavioral and Technical Considerations

A management accounting system should have two simultaneous missions for providing information:

1. To help managers make wise economic decisions

2. To help managers and other employees to aim and strive for goals of the organization
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2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
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Different Costs for Different Purposes

A cost concept used for the external reporting purpose need not be the appropriate concept for the purpose of internal routine reporting to managers.

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2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
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Learning Objective 5

Understand what professional ethics mean to management accountants.

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2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
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Ethical Guidelines
The Institute of Management Accountants (IMA) is the largest association of management accountants in the United States. The IMA has issued a Standards of Ethical Conduct for Management Accountant.
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2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
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