Describe how accounting supports management and financial decision

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It measures and reports financial and nonfinancial information that helps managers make decisions to fulfill the goals of an organization.

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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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It provides information for both management accounting and financial accounting.

It measures and reports financial and nonfinancial data.

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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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Understand how accountants affect strategic decisions.

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Developing strategy Building resources and capabilities Implementing strategy

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Building resources and capabilities

Current Assets

Long-Term Productive Assets

Intangible Assets

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Distinguish between the planning and control decisions of managers.

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Management Decision

Management Accounting System

Planning
Feedback

Budgets

Control
Performance Evaluation

Accounting System
Performance Reports
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What is planning?

Setting goals

Predicting results

Deciding how to attain goals

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What is control?

Deciding and taking actions

Deciding on performance evaluation and feedback

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What are budgets?

They are quantitative expressions of a proposed plan of action.

They aid in the coordination and implementation of the plan.

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What are performance reports?

These are reports that compare actual results with budgeted amounts.

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Enterprise, July 2011

Revenues Cost of goods sold Wages General Fixed costs Operating income

Budget $59,000 42,000 6,700 1,300 5,000 $ 4,000

Actual $60,000 43,400 7,000 900 5,000 $ 3,700

Variance $1,000 F 1,400 U 300 U 400 F 0 $ 300 U

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Receivable Turnover Ratio is one of the accounting activity. This measures the number of times, on average, receivables (e.g. Accounts Receivable) are collected during the period. A popular variant of the receivables turnover ratio is to convert it into an Average Collection Period in terms of days
Formula: Net Credit Sales __________________ Account Recievable

the Inventory turnover is a measure of the number of times inventory is sold or used in a time period such as a year. The equation for inventory turnover equals the cost of goods sold divided by the average inventory. The formula for inventory turn over: The formula for average inventory: Cost of Good Sold Avg. Inventory Beg. Inventory+End.Inventory 2

the Cash Conversion Cycle (CCC) measures how long a firm will be deprived of cash if it increases its investment in resources in order to expand customer sales. It is thus a measure of the liquidity risk entailed by growth

This involves managers examining past performance and systematically exploring alternative ways to make better informed decisions in the future.

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Distinguish among the problemSolving, Scorekeeping , and attention-directing roles of accountants.

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This involves comparative analysis for decision making. This role asks: Of the several alternatives available, which is the best?

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This involves accumulating data and reporting reliable results to all levels of management.

This role asks: How is the business doing?

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This involves helping managers properly focus their attention.

This role asks: Which opportunities and problems should be emphasized first. Attention directing should focus on all opportunities to add value to an organization, not just cost-reduction opportunities.
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Identify four themes managers need to consider for attaining success.

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Customer Focus

Value Chain and Supply Chain Analysis

Key Success Factors: Cost and Efficiency, Time, Quality, Innovation

Continuous Improvement and Benchmarking

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The challenge facing managers is to continue investing sufficient (but not excessive) resources in customer satisfaction such that profitable customers are attracted and retained.

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This theme has two related aspects:

1. Treat each of the business functions in the value chain as an essential and valued contributor.

2. Integrate and coordinate the efforts of all business functions in addition to developing the capabilities of each individual business function.
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services, and information from cradle to grave, regardless of whether those activities occur in the same organization or other organizations.

Supply chain describes the flow of goods,

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These are operational factors that directly affect the economic viability of the organization.

are under continuous pressure to reduce costs.

Cost organizations

are expecting higher levels of quality.

Quality customers

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Time organizations are under pressure to

complete activities faster and to meet promised delivery dates more reliably.

Innovation there is now heightened recognition

that a continuing flow of innovative products or services is a prerequisite to the ongoing success of most organizations.

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Continuous improvement by competitors creates a never-ending search for higher levels of performance within many organizations.

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Describe the set of business functions in the value chain.

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The term value chain refers to the sequence of business functions in which usefulness is added to the products or services of an organization.

The term value is used because as the usefulness of the product or service is increased, so is its value to the customer.

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Management accountants provide decision support for managers in the following six business functions:

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R&D

Design

Production

Financial Accounting
Marketing Distribution Service

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Research and Development

It is the process that is conducted to generate and experiment with ideas related to new products, services, or processes.

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Design
It is the detailed planning and engineering of products, services, or processes.

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Production
It is the acquisition, coordination, and assembly of resources to produce a product or deliver a service.

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Marketing
It is the manner by which companies promote and sell their products or services to customers or prospective customers.

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Distribution
It is the delivery of products or services to the customer.

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Service
It is the after-sale support activities provided to customers.

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Understand how accounting fits into an organizations structure.

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Line management is directly responsible for

attaining the objectives of the organization.

Staff management exists to provide advice

and assistance to line management.

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Board of Directors

Chairman Chief Executive Officer (CEO)

President Chief Operating Officer (COO)

Chief Financial Officer (CFO)

Controller

Audit

Tax

Treasury

Risk Management

Investor Relations
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Controller

Examples of Functions:

* Global Financial Planning/Budgeting * Operations Administration * Profitability Reporting * Inventory

* Royalties * General Ledger * Accounts Payable and Receivable * Subsidiary and Liaison Accounting

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Competence

Integrity

Confidentiality

Objectivity

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