Nen Tang Cua Ke Toan Quan Tri Chaper 1

Tiếng Anh

Part I Foundations of Management Accounting

Chapter 1 • Introduction to Management Accounting

Chapter 2 • Management Accounting and Decision-making

Chapter 3 • Financial Statements for Manufacturing Businesses

Chapter 4 • Classification of Manufacturing Costs and Expenses

Chapter 5 • Management Accounting Theory of Cost Behavior

Chapter 6 • Direct Costing Financial Statements

Introduction to Management Accounting

Introduction

Managerial accounting may be regarded as a body of knowledge that is concerned with concepts and decision-making tools that enable management to make better decisions and to evaluate results As a body of technical knowledge, management accounting primarily consists of certain decision-making techniques or tools drawn from financial and management theory and practice A basic premise is that the primary task of management is to make decisions and that this task is greatly improved by the knowledge and skills of the management accountant A corollary premise is that the management accountant’s ability to serve management is greatly enhanced by a knowledge of management and, in particular, a sound knowledge of the fundamentals of marketing, production, and finance

This book is based on the assumption that the accountant in the role of advisor

to management must understand basic management concepts, particularly those concepts embedded in the function of decision-making Only if the accountant has

a proper understanding of management’s needs will he or she be able to furnish the data and special analyzes that will enable management to make consistently good decisions Conversely, this book assumes that management must understand accounting and the type of information that the accountant can provide Without

an understanding of some accounting, the manager or decision-maker may fail to request information or seek help at a critical time Therefore, this book is written for two groups of individuals: accountants and managers The accountants, of course, are expected to acquire a higher degree of proficiency in the use of the planning and control techniques presented

Definition of Management Accounting

What is accounting? A very old but frequently used definition states: “Accounting is the art of recording, classifying, and summarizing in a significant manner and in terms

of money, transactions, and events, which are, in part at least of a financial character, and interpreting the results thereof.” (AIA Bulletin No 1 - Review and Resume)

A more recent definition states: “Accounting is a service activity Its function is to provide quantitative information, primarily financial in nature, about economic entities that is intended to be useful in making economic decisions–in making reasoned choices among alternative courses of action.” (APB Statement No 4) This latter definition is more appropriate to managerial accounting because of its emphasis on decision-making

Management accounting may be simply defined as a body of accounting knowledge primarily consisting of concepts and techniques (tools) useful to management in making better decisions and evaluating performance Most managerial accounting theorists and writers agree that the following concepts and tools represent the foundation of management accounting:

Decision-making Tools Concepts

1 Cost-volume-profit analysis 1 Fixed and variable costs

2 Comprehensive budgeting 2 Escapable and inescapable costs

4 Incremental analysis 4 Incremental costs

9 Cost analysis for marketing 9 Contribution margin production, and finance 10 Planning

10 Segmental income statements 11 Control

11 Financial statement ratio analysis 12 Standards

From the above listing, it is apparent that the subject matter of management accounting has little to do with transactions analysis and the preparation of statements from historical data However, management accounting is not independent of financial accounting Financial accounting is a foundation requirement for management accounting and a study of financial accounting must precede the study of management accounting The basic carryover from the study of financial accounting is a solid understanding of financial statements An understanding of how to analyze and record the effects of individual transactions of assets, liabilities, capital, and revenue

is helpful but not essential

Management: The Focal Point of Management Accounting

The term management accounting obviously consists of two words each of which represents highly developed areas of study The term management accounting suggests an important relationship between management and accounting

Furthermore, there is implied an area of common interests Management accounting

is not merely the application of accounting to management; rather it is a study of analytical techniques that result from the combining of accounting fundamentals with the fundamental concepts of management

The student that is planning a professional career in accounting must develop

an appreciation and understanding of management It is management that guides the business and makes the decisions which determine the success or failure of a business The accountant serves in a staff or advisory function under management

On the other hand, those students planning a professional career as managers need to understand and appreciate that a knowledge of accounting is critically important Although accountants use technical accounting expertise to prepare financial statements, it is management that receives and uses financial statements Management, not accountants, has the need and responsibility to read and understand financial statements Financial statements, in one sense, are summary reports of how well management has performed (made decisions) for a given period of time For management to have a negative attitude towards accounting is tantamount to being negative towards their own responsibilities and accomplishments

Certain concepts of management are essential to a study of management accounting The following concepts will be employed throughout this text as important

in understanding the technical aspects of management accounting

Planning

Control (performance evaluation)

Organization

Standards

Decision-making

Feedback

Goals and objective

Strategy

These terms will be explained in the chapters where they can be logically associated to the management accounting tools that make them relevant

Accounting as an Organizational Function

Management accounting techniques are useful in all types of businesses Managers of service, merchandising, manufacturing, banks, insurance companies, etc all can benefit from the use of management accounting Management accounting

is frequently associated with fairly large corporate businesses; however, it is equally useful to small businesses

When a business reaches a certain size, then the accounting activity is of such a volume that the accounting activity must be organized and managed Consequently, accounting in larger businesses can be thought of as a departmentalized function appearing on the organization chart as a staff function While the term management accounting implies to individuals possessing specialized knowledge of management and accounting, the term can also be applied to the accounting department as a whole

A simple model of the accounting function is shown in Figure 1.1 The management techniques presented in this book would primarily be used in the budgeting and revenue and cost analysis section of the accounting department

Board of Directors

Marketing Department Department Production Department Finance

Accounting Department

From a departmental viewpoint, all accounting activities are management in nature The accounting department exists to serve the financial data needs of management The controller or head of the accounting department in many companies is considered

to be a part of the decision-making team Therefore, from an organizational viewpoint, the distinction between financial accounting and managerial accounting is somewhat artificial The controller, the chief executive officer of the accounting department, is always serving as an management accountant, regardless of what type of accounting

is being done However, the majority of accounting activities he or she supervises would from an academic viewpoint be classified as financial accounting as opposed

to management accounting

Relationship of Financial and Managerial Accounting

The study of accounting is normally divided into two broad categories: financial and managerial This division is somewhat arbitrary in that the study of managerial accounting requires a strong foundation in financial accounting However, there is a definite difference in orientation and methodology which needs to be understood Accounting exists in a network of complex business relationships both internal and external In management accounting, the focal point is the role of management within the organizational structure Both the financial accountant and the managerial accountant need a knowledge of external factors and relationships as well as a conceptual knowledge of accounting principles and procedures Accounting as a function within a business organization is service oriented Accounting serves the financial information needs of many different types of groups including investors, governments, customers, employees, unions, and bankers Most importantly, it serves the internal information needs of management Figure 1.2 illustrates the environment

in which management and the management accountant operate

FIGURE 1.1 • Diagram of the Accounting Function

In a broad sense, financial accounting, as a branch of accounting in general, serves all types of users Management accounting, on the other hand, is intended

to serve primarily management’s internal information needs; therefore, managerial accounting is not governed by strictly defined and publicly promulgated principles and standards Financial accounting is concerned with the reporting of operations

to external parties; whereas, management accounting is internal in direction and is primarily concerned with serving the decision-making needs of management

Management accounting as a body of technical knowledge is, in fact, a synthesis

of various disciplines Many of the techniques such as capital budgeting models and EOQ models have been borrowed from other disciplines The conceptual framework

of management accounting, then, has building blocks in its foundation from:

1 Management theory ( planning, control, organization)

2 Financial accounting (financial statements)

3 Finance theory (capital budgeting, working capital)

4 Economic theory (pricing, forecasting, supply, demand, cost behavior)

5 Marketing theory (order getting, order processing, order delivery)

6 Mathematics (algebra, calculus)

Therefore, an understanding of management accounting is greatly enhanced, if preceded by a knowledge of the fundamentals of management, finance, production, marketing, economics, and mathematics

Environmental Structure of Accounting

Accounting is a complex body of knowledge and procedures that has evolved over the last few hundred years The complexity of accounting in the last fifty years has greatly accelerated as more complex financial transactions have been developed and regulatory agencies, both private and non private, have come into existence Voluminous rules and regulations, (for example, Financial Accounting Standards) have been written and put into practice Also, the rapid development of personal computers and very powerful accounting and systems software has had its impact

in accelerating the complexity of accounting Within accounting, there are highly developed specialized areas such as the following:

Management accounting Financial accounting

Not-for-profit accounting Governmental accounting

Accounting as a profession employs hundreds of thousands of individuals who serve both in public accounting and private accounting As of 2006, there were approximately 650,000 CPAs in the USA Accounting is needed in every type of business and organizations including state and federal governments, banks,

not-for-profit businesses, manufacturing and retail businesses of all types, and labor unions The professional accountant needs to have an awareness and knowledge of how the financial and economic environment has an impact on business Also, an acute awareness of the many different types of organizations that a business interacts with

is crucial to being a successful management accountant

Comparison to Financial Accounting

The differences between financial and managerial accounting can be effectively illustrated by using (1) an input and output approach and (2) a financial statement approach Both approaches will be illustrated

Input/output Approach - Although narrower in scope of users, management

accounting, nevertheless, is broader in scope in the type of data used in the models through which data is processed and analyzed The input and output diagrams illustrated in Figures 1.3 and 1.4 reveal the differences in the nature of inputs and the mode of processing between financial and management accounting

The input/output diagram shown in Figure 1.4 reveal that management accounting deals with a wider range of inputs and outputs Also, the methodology of processing data involves numerous types of mathematical model The inputting, processing, and outputting of data in management accounting is not limited to a prescribed set of rules dealing only with historical data as is the case in financial accounting

Financial Statement Approach

Both financial accounting and management accounting are concerned with financial statements The financial accountant is concerned with analyzing and recording the historical transactions (past decisions) of the business A primary objective of the financial accountant is to fairly present financial statements based on past events (see Figure 1.3) The management accountant is primarily concerned with desired future

Figure 1.2 • Accounting Environment

ORGANIZATIONS

Governments

(States & Federal) Instiltutions Financial Business Firms Labor Unions Consumers Investors Professions Business

Financial Accounting

Balance

Sheet Statement Income Cash Flow Statement

President

Marketing Production Finance

Accounting

Accounting System

Jourlnals General Ledger Special Journals

Accounting Theory and Methodlogy Theory Assumptions Standards and Recording Rules Statistical and Mathematical Techniques

events Future events will be the results of decisions to be made by management The management accountant, then, is also concerned with financial statements (e.g budgeted financial statements) that reflect the anticipated consequences of planned decisions (planned transactions) For example, the financial accountant is concerned with questions such as: What is the amount of cash on hand? What is the cost of inventory on hand? The management accountant, however, is concerned with questions such as: What amount of cash should be on hand? What is the desired level of inventory? Figure 1.5 summarizes the differences in viewpoint for each item

on the balance sheet and income statement

Figure 1.4 • Managerial Accounting

Figure 1.3 • Financial Accounting

Inputs

Planned data, Statistical data, Future costs.

Standards, Historical accounting data, if relevant

Accounting Department

Data for decision-making and performance evaluation are processed by means of budget models, forecasting models, cost analysis

techniques, etc.

Outputs

Operating budgets Capital budgets Flexible budgets Special reports (graphic, tables) Summaries and Schedules Segmental income statement

Inputs

Accounting Transactions (Historical Data)

Accounting Department

Accounting transactions are processed by means

of journals, accounts and ledgers Now done primarily by use of accounting software and computers.

Outputs

Income Statement Balance Sheet Statement of Cash Flows Other types of financial reports

Figure 1.5

Summary of Financial And Managerial Accounting Points of View

Financial Accounting Viewpoint Managerial Accounting Viewpoint

1 CASH

What is the balance?

Emphasis is on:

General journal entries, bank reconciliations, petty cash

1 CASH How much cash should be on hand? Emphasis is on:

Cash budgeting, cash flow, alternative uses of cash

2 ACCOUNTS RECEIVABLE

What is the amount that is collectible?

Emphasis is on:

Estimation of bad debts, factoring, recording of collections

3 ACCOUNTS RECEIVABLE What should the credit terms be?

Emphasis is on:

Effect of different credit terms, bad debt factors, analysis of credit revenue and expenses

3 INVENTORY

What is the historical dollar amount that

should be assigned to inventory?

Emphasis is on:

Inventory cost methods, methods of estimating inventory

3 INVENTORY What is the optimum level of inventory? Emphasis is on:

EOQ models, safety stock, quantity discounts

4 FIXED ASSETS

What is the unamortized amount?

Emphasis is on:

Depreciation methods, journal entries or trades and retirements

4 FIXED ASSETS How much plant and equipment is needed?

Emphasis is on:

Capacity requirements, capital budgeting, replacement of equipment

5 SHORT-TERM DEBT

What amount is owed?

Emphasis is on?

Recording accrued liabilities and interest expense

5 SHORT-TERM DEBT How much short-term debt is needed? Emphasis is on:

Cost of capital, debt/equity ratios, cash budgeting, and risk

6 LONG-TERM DEBT

What amount is owed?

Emphasis is on:

Amortization of bond premium and discount, accrued interest, and bond refunding

6 LONG-TERM DEBT How much long-term debt should be issued?

Emphasis is on:

Cost of capital, debt/equity ratio, cash budgeting, issuance of different types

of securities