Management Accounting A Value Added Discipline

1
Management AccountingA Value Added Discipline

• Financial and Managerial Accounting Distinguished

2
Objectives of Chapter 1

• Comparison of Financial Accounting with
  Managerial Accounting
• Distinguish Product Costs From Period Costs
• To Understand Financial Statement effects of
  Product Costs and Period Costs

3
Financial/Managerial Accounting
Features Financial Acctg Managerial Acctg
User Types Outside (External) Inside (Internal)
Level of Aggregation Global (Entire Company) Detailed or subunits
Regulation FASB GAAP SEC Value-Added
Characteristics Objective, reliable, consistent, historical Estimates and projections
Time Horizon Historical Present Future
Reporting Freq Periodic Years, etc Continuous
4
Product Costs Vs Period Costs
Type of Cost Assets Expenses
Product Costs Inventory
Cost of Goods Sold
Period Costs Expenses
Product Costs are inventories first, then
expensed when the product is sold Period Costs
are expensed whenever incurred
5
What are Product Costs?

• Manufacturing Firm
• Direct Materials such as wood, metal, shingles
• Direct Labor incurred in producing the product
• Indirect manufacturing costs such as supervisory
  salaries, machine maintenance, and supplies
• Service Firm
• Some few will have direct materials (plumber)
• Direct Labor
• Indirect production costs
• Indirect costs in both types of firms are known
  as overhead

6
Financial Statement Effects

• Product Costs will first increase an asset
  account (Inventories) and then increase and
  expense account (Cost of Goods Sold) when
  products are sold
• It is important when building inventories to be
  specific in determining your per unit cost (Cost
  Accounting) as not all inventoried products are
  sold during the period they were made
• Period costs increase expenses whenever they are
  made