Accounting for Management: Concepts and Tools

Transcription

1 Accounting for Management: Concepts and Tools

2 Accounting for Management: Concepts and Tools Copyright 2014 by DELTACPE LLC All rights reserved. No part of this course may be reproduced in any form or by any means, without permission in writing from the publisher. The author is not engaged by this text or any accompanying lecture or electronic media in the rendering of legal, tax, accounting, or similar professional services. While the legal, tax, and accounting issues discussed in this material have been reviewed with sources believed to be reliable, concepts discussed can be affected by changes in the law or in the interpretation of such laws since this text was printed. For that reason, the accuracy and completeness of this information and the author's opinions based thereon cannot be guaranteed. In addition, state or local tax laws and procedural rules may have a material impact on the general discussion. As a result, the strategies suggested may not be suitable for every individual. Before taking any action, all references and citations should be checked and updated accordingly. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert advice is required, the services of a competent professional person should be sought. -From a Declaration of Principles jointly adopted by a committee of the American Bar Association and a Committee of Publishers and Associations.

3 Course Description A primer on the basic theoretical concepts and the practical procedures of financial record keeping and reporting, and the use of financial and cost data in managerial decision making. It provides an understanding and working knowledge of the fundamentals of financial and managerial accounting that can be put to practical application in day-to-day jobs of managers. It also concentrates on providing a working vocabulary for communication. Topics include accounting principles and reporting trends, accounting conventions and systems, interpretation and analysis of financial statements; cast flow statement; break-even analysis; activity-based costing (ABC); responsibility accounting; budget for profit planning; short-term and long-term investment decision making. A list of computer software for accounting, ABC, and budgeting is presented. Field of Study Level of Knowledge Prerequisite Advanced Preparation Accounting Basic to Intermediate None None

4 Table of Contents Chapter 1: Introduction to Accounting... 1 Learning Objectives:...1 Nature and Scope of Accounting...1 Accounting: The Basis for Decision Making... 2 The Major Areas of Accounting...2 Private Accounting... 2 Public Accounting... 2 Governmental Accounting... 3 Major Accounting Rule-Making Organizations...3 American Institute of CPAs... 3 Financial Accounting Standards Board (FASB)... 3 Securities and Exchange Commission (SEC)... 4 The International Accounting Standards Board (IASB)... 4 Public Company Accounting Oversight Board (PCAOB)... 4 Governmental Accounting Standards Board (GASB)... 4 Other Organizations... 4 The Global Trends and Developments in Financial Reporting...5 The Basic Accounting Principles...6 Historical Cost... 6 Conservatism... 6 Consistency... 6 Comparability... 6 Going Concern... 6 Matching... 7 Realization... 7 Accrual... 7 Materiality... 7 Disclosure... 7 Objectivity... 7 Timeliness... 7 Relevant... 8 Stable Dollar... 8 Accounting Period... 8 Entity... 8 The Concept of the Business Entity...8 Sole Proprietorship... 8 Partnership... 9 Corporation... 9 Presenting Accounting Information through Financial Statements...9

5 Balance Sheet... 9 Owners Equity Income Statement Statement of Cash Flows Chapter 1 Review Questions Chapter 2: Understanding the Financial Statements Learning Objectives: The Income Statement and Balance Sheet Revenue Expenses Net Income (Loss) Assets Liabilities Equity The Statement of Cash Flows FASB Requirements Accrual Basis of Accounting Operating Activities Investing Activities Financing Activities Notes to Financial Statements Summary Chapter 2 Review Questions Chapter 3: Recording Financial Information and Accounting Conventions Learning Objectives: Double Entry and the Accounting Equation The Accounting Equation The Account Ledger A Chart of Accounts The System of Debits and Credits The "How and Why" of Debits and Credits Journals Types of Depreciation Methods Straight-Line Method Sum-of-the-Years'-Digits (SYD) Method Double-Declining-Balance (DDB) Method Units of Production Method Which Method to Use... 41

6 Summary Chapter 3 Review Questions Chapter 4: Analysis of the Financial Statements Learning Objectives: Who Uses Financial Analysis? Internal Managers External Users Horizontal and Vertical Analysis Financial Statement Analysis Trend Analysis Liquidity Analysis Working Capital Accounts-Receivable Ratios Inventory Ratios Interrelationship of Liquidity and Activity to Earnings Measuring a Company s Ability to Pay Its Long-Term Debt Profitability Ratios Earnings per Share Evaluating Stock as an Investment Book Value and Market Value for Selected Companies Limitations of Ratio Analysis Summary Chapter 4 Review Questions Chapter 5: What Is Management Accounting? Learning Objectives: Financial Accounting versus Management Accounting Financial Accounting The Work of Management Cost Accounting versus Management Accounting Controllership Managerial Accounting in the New Production Environment Total Quality Management and Quality Costs Continuous Improvement (CI) and Benchmarking Business Process Reengineering (BPR) Just-in-Time and Lean Production Theory of Constraints (TOC) and Bottlenecks Management Cost Classifications and Profit Concepts Costs by Management Function... 77

7 Product Costs and Period Costs Direct Costs and Indirect Costs Direct Costs of Nonmanufacturing Firms Variable Costs, Fixed Costs, and Mixed Costs Unit Costs and Total Costs Unit Costs for Planning, Control, and Decision Making Merchandising vs Manufacturing Organizations Income Statements and Balance Sheets - Manufacturer The Contribution Income Statement Chapter 5 Review Questions Chapter 6: Product Costing Methods: Job Order Costing, Process Costing, And Activity- Based Costing Learning Objectives: Job Order Costing and Process Costing Compared DIFFERENCES BETWEEN JOB ORDER COSTING AND PROCESS COSTING Job Order Costing Job Cost Records Factory Overhead Application Predetermined Factory Overhead Rate Disposition of Under- and Over-Applied Overhead Plantwide versus Departmental Overhead Rates TOTAL PRODUCT COSTS AND PROFITS Activity-Based Costing Composition of Product Cost First-Stage Procedure Second-Stage Procedure Using Activity-Based Costing To Make Marketing Decisions A List of Activity-Based Costing (ABC) Software Chapter 6 Review Questions Chapter 7: Cost Behavior and Cost-Volume-Profit Analysis Learning Objectives: A Further Look at Costs by Behavior

8 Types of Fixed Costs - Committed or Discretionary Analysis of Mixed (Semi-variable) Costs Relevant Range Engineering Analysis Account Analysis The High-Low Method Questions Answered by CVP Analysis Contribution Margin (CM) Break-Even Analysis Graphical Approach Determination of Target Income Volume Impact of Income Taxes Margin of Safety Present Proposed Difference Sales Mix Analysis Deluxe Standard Chapter 7 Review Questions Chapter 8: Budgeting and Standard Cost Systems Learning Objectives: Types of Budgets The Sales Budget Monthly Cash Collections from Customers The Production Budget Inventory Purchases Merchandising Firm The Cash Budget The Budgeted Income Statement The Budgeted Balance Sheet Financial Modeling: Computer-Based and Spreadsheet Models for Budgeting Standard Costs and Variance Analysis General Model for Variance Analysis Materials Variances Labor Variances Variable Overhead Variances

9 Nonfinancial Performance Measures Budgeting and Planning Software Chapter 8 Review Questions Chapter 9: Responsibility Accounting Learning Objectives: Responsibility Accounting and Responsibility Center Control of Profit Centers Segmental Reporting for Profit Centers Control of Investment Centers Rate of Return on Investment (ROI) Operating assets The Breakdown of ROI -- Du Pont Formula ROI and Profit Planning Residual Income (RI) Residual Income and Economic Value Added Investment Decisions under ROI and RI Chapter 9 Review Questions Chapter 10: Relevant Costs and Short-Term Decisions Learning Objectives: Relevant Costs Defined Pricing a Special Order Outsourcing: The Make or Buy Decision The Sell-Or-Process-Further Decision Keeping or Dropping a Product Line Product Mix Decisions in the Presence of Limited Resources Theory of Constraints You Should Remember Chapter 10 Review Questions Chapter 11: Capital Budgeting Decisions Learning Objectives: What Are the Features of Investment Projects? Understanding the Concept of Time Value of Money What Is Present Value - How Much Money Is Worth Now?

10 Present Value of Mixed Streams of Cash Flows Present Value of an Annuity How Do You Measure Investment Worth? Payback Period Accounting Rate of Return Internal Rate of Return Net Present Value NPV versus IRR: Mutually Exclusive Projects Chapter 11 Review Questions Glossary Index Appendix Review Question Answers Chapter 1 Review Questions Chapter 2 Review Questions Chapter 3 Review Questions Chapter 4 Review Questions Chapter 5 Review Questions Chapter 6 Review Questions Chapter 7 Review Questions Chapter 8 Review Questions Chapter 9 Review Questions Chapter 10 Review Questions Chapter 11 Review Questions

11 PREFACE Accounting for Management is a basic survey course specifically designed for managers and business owners. Each accounting subject is presented in a clear and concise manner that enables a beginning learner to quickly grasp and understand the topic under discussion. This course provides students with their first practical exposure to such accounting topics as fundamental accounting concepts and tools, financial statements, and managerial use of accounting information. The goals of the course are threefold: 1. It provides an understanding and working knowledge of the fundamentals of financial and managerial accounting that can be put to practical application in day-to-day jobs of managers. 2. It also concentrates on providing a working vocabulary for communication. 3. It uses the solved problems approach, with emphasis on the practical application of accounting concepts, tools, and methodology.