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Chapter 1 Slides 2023

This document provides an introduction to management accounting. It distinguishes management accounting from financial accounting. Management accounting provides internal information for decision-making, planning and control, while financial accounting provides external reporting. The document outlines key differences in legal requirements, content, precision, format, time dimension and frequency between the two. It describes the primary functions of a management accounting system as inventory valuation, providing relevant information for decision-making, and planning, control and performance measurement. Finally, it briefly discusses the decision-making process and how changes in the business environment have impacted management accounting practice.

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91 views14 pages

Chapter 1 Slides 2023

This document provides an introduction to management accounting. It distinguishes management accounting from financial accounting. Management accounting provides internal information for decision-making, planning and control, while financial accounting provides external reporting. The document outlines key differences in legal requirements, content, precision, format, time dimension and frequency between the two. It describes the primary functions of a management accounting system as inventory valuation, providing relevant information for decision-making, and planning, control and performance measurement. Finally, it briefly discusses the decision-making process and how changes in the business environment have impacted management accounting practice.

Uploaded by

Khulekani Sbonokuhle
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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EMAC2714

CHAPTER 1 :
Introduction to Management
Accounting

Cost and Management Accounting: An Introduction, 7th edition


Colin Drury
ISBN 978-1-40803-213-9 © 2011 Cengage Learning EMEA
LEARNING OUTCOMES:
1. Distinguish between management accounting and financial
accounting;
2. Identify and describe the elements involved in the decision-
making, planning and control process;
3. Justify the view that a major objective of commercial
organizations is to broadly seek to maximize future profits;
4. Explain the important changes that have taken place in the
business environment that have influenced management
accounting practice;
5. Outline and describe the key success factors that directly
affect customer satisfaction;
6. Identify and describe the functions of a cost and
management accounting system
What is Financial Accounting?

Investopedia 
• The process of recording, summarizing and
reporting the transactions resulting from business
operations over a period of time to users of the
information – these transactions are then
summarized in the AFS

AccountingEdu.org 
Financial accounting is the process of preparing
financial statements that companies’ use to show
their financial performance and position to people
outside the company
USERS

1. External Users

2. Internal Users
What is Management Accounting?

Drury 
• concerned with the provision of
information to people within the
organization to aid in decision-making
and improve the efficiency and
effectiveness of existing operations
Differences between management accounting
and financial accounting

FINANCIAL ACC MANAGEMENT ACC

LEGAL Financial statements No requirement –


REQUIREMENTS for Public entities must produced only if it is
be prepared annually considered necessary
(Co. Act) by management
CONTENT Financial statements Information gathered as
are a summary of the needed by
company as a whole management.
(A, L, E, Inc, Exp)
Focusses on smaller
parts/segments of the
business
PRECISION Factual information Estimates AND factual
(verifiable/objective) information
Differences between management accounting
and financial accounting (cont.)
FINANCIAL ACC MANAGEMENT ACC

FORMAT Statement must be No specific


prepared using requirements – focus
IFRS/IFRS for SME’s on serving
(GRAP) management’s needs
(providing info useful to
management)

TIME DIMENSION Focus on what has Concerned with future


happened in the past information AND past
(historical information) information

FREQUENCY Annually (semi- More frequently – as


annually) and when it is needed
by management
Primary functions of Management
Accounting System

Management accounting systems generate


information for:
Primary functions of cost and management
accounting systems

1.Inventory valuation for internal and external profit


measurement

• Allocate costs between products sold and fully and


partly completed products that are unsold.

2.Provide relevant information to help managers make


better decisions

• profitability analysis
• product pricing
• make or buy (outsourcing)
• product mix and discontinuation
3. Provide information for planning, control and performance
measurement

• Long-term and short-term planning (budgeting)

• Periodic performance reports for feedback control

• Performance reports also widely used to evaluate managerial


performance

• Note that costs should be assembled in different ways to meet the


above three requirements.
The decision-making process
Impact of the changing business
environment on management accounting
1. Changes in the business environment.
Customer Satisfaction…….

• Cost efficiency

• Quality

• Time

• Innovation / continuous improvement


HOMEWORK

•Review questions 1.1 – 1.8

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