THE MANAGER AND MANAGEMENT ACCOUNTING
1-1 How does management accounting differ from financial accounting?
Management accounting measures, analyzes, and
... [Show More] reports financial and nonfinancial information
that helps managers make decisions to fulfill the goals of an organization. It focuses on internal
reporting and is not restricted by generally accepted accounting principles (GAAP).
Financial accounting focuses on reporting to external parties such as investors,
government agencies, and banks. It measures and records business transactions and provides
financial statements that are based on generally accepted accounting principles (GAAP).
Other differences include (1) management accounting emphasizes the future (not the
past), and (2) management accounting influences the behavior of managers and other employees
(rather than primarily reporting economic events).
1-2 “Management accounting should not fit the straitjacket of financial accounting.”
Explain and give an example.
Financial accounting is constrained by generally accepted accounting principles. Management
accounting is not restricted to these principles. The result is that
• management accounting allows managers to charge interest on owners’ capital to help
judge a division’s performance, even though such a charge is not allowed under GAAP,
• management accounting can include assets or liabilities (such as “brand names”
developed internally) not recognized under GAAP, and
• management accounting can use asset or liability measurement rules (such as present
values or resale prices) not permitted under GAAP.
1-3 How can management accounting information help managers
formulate strategies?
Management accounting information helps manager formulate strategy by
answering the following questions, which could contribute to formulation of
strategies:
• Who are our most important customers and what are our critical
capabilities?
• What are the bargaining power of our customers and our suppliers?
• What substitute products exist in the marketplace, and how do they differ from our
products in terms of features, price, cost, and quality?
1-4 Define the term “value chain” and state its six primary business
functions.
The value chain is the sequence of business functions by which a product is made progressively
more useful and added value to customers. Its six primary business functions are research and
development (R&D), design of products and processes, production, marketing, distribution, and
customer service. In addition to the six primary business functions, value chain may involve an [Show Less]