MANAGERIAL ACCOUNTING – GENERAL CONCEPTS

Albert A. Victoria

Managerial Accounting – a branch of accounting that provides information to management.

Objectives:
a. Providing information to management decision making.
b. Assisting managers in directing and controlling operational activities.
c. Motivating managers and employees toward organizational goals.
d. Measuring performances
e. Assessing the organization’s competitive position.
Managers – they organize the different resources of an entity to achieve its organizational objectives.
 Organize activities: hire people, purchase properties and supplies, etc.
 Resources: cash, properties, human, technology, information, etc.
 Objectives: earn profit

Different Activities of Managers

1. Planning – setting goals and selecting strategies
a. Setting Goals – Long-term (sustainability), Mid-term (Bridge), Short-term (operating)
b. Selecting Strategies –
i. Cost Leadership; an effective business-level strategy to the extent that a firm offers low prices, provides
satisfactory quality, and attracts enough customers to be profitable.
ii. Product Differentiation; marketing process of differentiating an offering (product or service) from others in
the market, to make it more appealing to the target audience.
iii. Market Penetration/Focus; a technique of increasing the market share of a product by adopting creative
strategies such as advertising, bundling, discounted volumes and prices. The objective of this strategy is to
acquire a large market share in quick time.
c. Budget – end product of the planning process that shows the different goals and planned activities of the entity that
are express in financial terms
2. Executing – carrying out the activities of the business as planned
a. Directing – telling people what to do (Objectives, Procedures; Deadlines and important details)
b. Motivating – telling people why they have to do it (Appreciation and Importance of duties)
c. Status Report
3. Controlling – evaluating the results of operation. Continuous Improvement (KAIZEN), being better all the time
a. Evaluation – Planned versus Actual and looking for improvements rather than for mistakes. Materiality and
immateriality of the variances
b. Corrective Actions/Adjustments – maintain what is good (best practices) and replace what is not good
c. Performance or Variance Analysis and Status Report
4. Decision Making – selecting among different alternatives

Financial vs Managerial Accounting

Financial Accounting Managerial Accounting

Users External Users (investors, creditors, government Internal Users (Management team Members:
agencies, customers, suppliers, etc.) CEO, COO, Marketing managers, Production,
etc.)
Purpose General Purpose Specific Purpose
Output Financial Statements Special Reports to be used in Planning,
Monitoring and Controlling
Data used Primarily Financial Financial and Non-financial
Time Orientation Historical/Past/Passive Future Oriented/Active
Guiding Principle GAAP, Reliability, Precision User’s Requirement, Relevance, Timeliness
Unifying Concepts Accounting Equation (A=L+E) Management’s Decision Making
Content Pertains to the business as a whole Pertains to Individual Subunits of the business
Format Highly Aggregated (Condensed) Very Detailed
Frequency Annually and sometimes Quarterly As frequently as needed by management
As required by Regulating bodies
The Finance Department

Chief Financial Officer (CFO) Controller/Chief Accountant Treasurer

 Primary responsible/ Executive
Officer
 Coordinates the activities within the
Finance Department
Subordinates/Subdivision:
 Controller/Chief Accountant
 Treasurer
(Passive)
 Responsible for the Financial
Information
 Preparation of Budgets, FS, Tax
Returns, Analysis, etc.
 Planning and Control
 Reporting and Interpreting
 Evaluating and Consulting
 Tax Administration
 Government Reporting
 Protection of assets
 Economic Appraisal
 Coordinate to the auditor
 Information System
Subordinates/Subdivision:
 General Accounting (bookkeeping
– transaction recording)
 Cost Accounting
 Budgeting
 Tax and Government Reporting
 Financial Analysis
(Active)
 Responsible for the Financial
Transactions
 Investment Management
 Credit and Collection
 Relationship with Financial
Institutions and Investors
 Provision of capital
 Short-term Financing
 Banking and Custody
 Insurance
Subordinates/Subdivision:
 Credit Department
 Cashier
 Investments
 Debt Management
 Investors’ Relation
 Cash Department

Organizational Structure – it refers to the method of how business organization put together its people and their respective
positions that will result in the most effective and efficient operation.

Organizational Chart – shows the level of responsibility and formal channels of communication in an organization.

Types of Organization Structure

1. Centralized – decision making is exclusive to one person or group of person
2. Decentralized – decision making is delegated to the lowest possible managerial position (more on decentralization under
Responsibility Accounting)
Types of Position
Basic Classification Line Position
 They are directly involved in
achieving the basic objectives of an
organization.
(Sales Manager, Production
Supervisor)
Value Chain – a chain of Primary Activities:
activities that a firm  Inbound logistics – concerned with
operating in a specific receiving the materials from
industry performs in order suppliers, storing these externally
to deliver a valuable sourced materials, and handling them
product or service for the within the firm.
market.  Operations – related to the
production of products and services.
This area can be split into more
departments in certain companies.
 Outbound Logistics – concerned with
distributing the final product and/or
service to the customers.
 Marketing and Sales – this functional
area essentially analyses the needs
and wants of customers and is
responsible for creating awareness
among the target audience of the
company about the firm’s products
and services. Companies make use of
marketing communication tools
(Advertising, Sales Promotion, etc.)
to attract customers to their product.
 Service – a need to provide like pre-
installation of after-sales service
before or after the sale of the product
or service.
Staff Position
 They assist and support those in the
line position
(HR Manager, Controller, Head of
Security)
Support Activities:
 Procurement – is responsible for
purchasing the materials that are
necessary for the company’s
operations. An efficient procurement
department should be able to obtain the
highest quality goods at the lowest
prices.
 Human Resource Management – a
function concerned with recruiting,
training, motivating, and rewarding the
workforce of the company. HR are
increasingly becoming an important
way of attaining sustainable
competitive advantage.
 Technology Development – concerned
with technological innovation, training
and knowledge that is crucial for most
companies today in order to survive.
 Firm Infrastructure – includes planning
and control systems, such as finance,
accounting, and corporate strategy etc.

Institute of Management Accountants – Code of Ethics

1. Competence
 Maintain an appropriate level of expertise by continuing developing knowledge and skills
 Perform duties in accordance with relevant laws, regulations and technical standards
 Provide decision support information and recommendations that are accurate, clear, concise and timely
 Recognize and communicate professional limitations or other constraints that would preclude responsible
judgement or successful performance of an activity
 Quality of work.

2. Confidentiality
 Keep information confidential except when disclosure is authorized or legally required
 Inform all relevant parties regarding appropriate use of confidential information. Monitor subordinates’
activities to ensure compliance
 Refrain from using confidential information for unethical and illegal advantage

3. Integrity (internal honesty) – way of thinking

 Mitigate actual conflict of interest; regularly communicate with business associates to avoid apparent conflicts
of interest
 Refrain from engaging in any conduct that would prejudice carrying out duties ethically
 Abstain from engaging in or supporting any activity that might discredit the profession

4. Credibility (external honesty) – completeness of report, the way you manifest integrity
 Communicate information fairly and objectively
 Disclose all relevant information that could reasonably be expected to influence an intended user’s
understanding of the report, analyses, or recommendations.
 Disclose delays or deficiencies in information, timeliness, processing, or internal controls in conformance with
organization policy and/or applicable law

5. Resolution of Ethical Conflicts

 Discuss the issue with your immediate supervisor except when it appears that the supervisor is involved. In that
case, present the issue to the next level. If you cannot achieve a satisfactory resolution, submit the issue to the
next management level. If your authority may be a group such as audit committee, executive committee, board
of directors, board of trustees, or owners. Contact with levels above the immediate superior should be initiated
only with your superior’s knowledge, assuming he or she is not involved. Communication of such problems to
authorities or individuals not employed or engaged by the organization is not considered appropriate, unless you
believe there is a clear violation of law.
 Clarify relevant ethical issues by initiating a confidential discussion with an IMA Ethics counselor or other
impartial advisor to obtain a better understanding of possible courses of action.
 Consult your own attorney as to legal obligations and rights concerning the ethical conflict.