The Manager and Management

Accounting

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1. Distinguish financial accounting from
management accounting
2. Understand how management accountants
help firms make strategic decisions
3. Describe the set of business functions in
the value chain and identify the dimensions
of performance that customers are
expecting of companies

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4. Explain the five-step decision-making
process and its role in management
accounting
5. Describe three guidelines management
accountants follow in supporting managers
6. Understand how management accounting
fits into an organization’s structure
7. Understand what professional ethics mean
to management accountants

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 Management accounting—measures, analyzes,
and reports financial and nonfinancial
information to help managers make decisions
to fulfill organizational goals. Management
accounting need not be GAAP compliant.

 Financial accounting—focuses on reporting to

external users including investors, creditors,
banks, suppliers, and governmental agencies.
Financial statements must be based on GAAP.

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 Cost accounting – measures, analyzes and
reports financial and nonfinancial
information related to the costs of acquiring
or using resources in an organization.

 Today, most accounting professionals take

the position that cost information is part of
management accounting; therefore, the
distinction between the two is not clear-cut
and in this book, we often use the terms
interchangeably.
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Copyright © 2015 Pearson Education
 Strategy specifies how an organization matches
its own capabilities with the opportunities in
the marketplace.
There are two broad strategies: cost
leadership or product differentiation
 Strategic cost management—describes cost
management that specifically focuses on
strategic issues.

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Management accounting helps answer important
questions such as:
 Who are our most important customers, and how can
we be competitive and deliver value to them?
 What substitute products exist in the marketplace,
and how do they differ from our own?
 What is our most critical capability?
 Will adequate cash be available to fund the strategy
or will additional funds need to be raised?

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 Creating value is an important part of
planning and implementing strategy.
 Value is the usefulness a customer gains from
a company’s product or service. The entire
customer experience determines the value a
customer derives from a product.

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 The Value chain is the sequence of
business functions in which a product is
made progressively more useful to
customers.
 The Value chain consists of:
1. Research & development
2. Design of Products and Processes
3. Production
4. Marketing
5. Distribution
6. Customer service

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Copyright © 2015 Pearson Education
Copyright © 2015 Pearson Education
 Production and Distribution are the parts of
the value chain associated with producing
and delivering a product or service.
 These two functions together are known as
the Supply-Chain
 The supply chain describes the flow of goods,
services and information from the initial
sources of materials, services, and
information to their delivery regardless of
whether the activities occur in one
organization or in multiple organizations.
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 Customers want companies to use the value
chain and supply chain to deliver ever-
improving levels of performance when it
comes to several (or even all) of the
following:
 Cost and efficiency
 Quality
 Time
 Innovation
 Sustainability

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1. Identify the problem and uncertainties.
2. Obtain information.
3. Make predictions about the future.
4. Make decisions by choosing between
alternatives.
5. Implement the decision, evaluate
performance, and learn.
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.
 Planning selects goals and strategies,
predicts results, decides how to attain goals,
and communicates this to the organization.
 Budget—the most important planning tool-is the
quantitative expression of a plan of activity by
management and is an aid to coordinating what
needs to be done to execute that plan.
 Control takes actions that implement the
planning decision, evaluates performance,
and provides feedback and learning to the
organization.
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.
Three guidelines help management accountants provide
the most value to the strategic and operational
decision- making of their companies:
Cost–benefit approach: benefits of an action/purchase
generally must exceed costs as a basic decision rule.
Behavioral and technical considerations: people are
involved in decisions, not just dollars and cents.
Different Costs for Different Purposes: Managers use
alternative ways to compute costs in different decision-
making situations.
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 Copyright © 2015 Pearson Education
.
 The four standards of ethical conduct for
management accountants as advanced by the
Institute of Management Accountants are:
 Competence
 Confidentiality
 Integrity
 Objectivity

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The Sarbanes-Oxley legislation was passed in
2002 in response to a series of corporate
scandals. The act focuses on improving:
1.Internal controls
2.Corporate governance
3.Monitoring of managers
4.Disclosure practices of public companies

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TERMS to LEARN Page Number Reference
Budget Page 11
Chief Financial Officer Page 14
Control Page 11
Controller Page 14
Cost Accounting Page 4
Cost-Benefit approach Page 12
Cost Management Page 4
Customer Relationship Page 7
Management (CRM)
Customer Service Page 6

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TERMS to LEARN Page Number Reference
Design of products and processes Page 6
Distribution Page 6
Finance Director Page 14
Financial Accounting Page 3
Learning Page 12
Line Management Page 14
Management Accounting Page 4
Marketing Page 6
Planning Page 11
Production Page 6

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TERMS to LEARN Page Number Reference
Research & Development (R&D) Page 6
Staff Management Page 14
Strategic Cost Management Page 5
Strategy Page 5
Supply Chain Page 7
Sustainability Page 8
Total Quality Management (TQM) Page 8
Value Chain Page 8

Copyright © 2015 Pearson Education

 Copyright © 2015 Pearson Education
.