Managerial Accounting - A+

Managerial Accounting

A field of accounting that provides information to internal users — managers — to help them plan, control, and make decisions about operations.

Financial Accounting

The branch of accounting aimed at providing information to external users such as investors, creditors, and regulators.

Differences Between Managerial and Financial Accounting

Managerial accounting emphasizes internal reporting, future orientation, and relevance, while financial accounting emphasizes external reporting, historical accuracy, and compliance with GAAP.

Planning

The process of establishing goals and the means to achieve them.

Controlling

The process of monitoring actual results, comparing them with planned goals, and taking corrective action when necessary.

Decision Making

Selecting among competing alternatives after analyzing available information.

Value Chain

The set of linked activities and processes that create value for customers — from research and development, through production, marketing, delivery, and customer service.

Lean Production

A manufacturing approach that focuses on eliminating waste, reducing non-value-added activities, improving quality, and shortening production time to increase efficiency.

Line Positions

Jobs directly responsible for achieving the organization's basic objectives (for example, production managers and sales managers).

Staff Positions

Jobs that provide support to line positions (for example, accountants, HR personnel, and legal advisors).

Chief Financial Officer (CFO)

Also called the controller or vice president of finance, this executive oversees the entire accounting and financial function of the organization.

Controller

The officer responsible for general accounting, managerial accounting, and tax reporting.

Treasurer

The officer responsible for raising capital, managing cash and investments, and maintaining relationships with financial institutions.

Institute of Management Accountants (IMA)

A professional association for management accountants that issues the Certified Management Accountant (CMA) credential and sets ethical standards for the profession.

IMA's Statement of Ethical Professional Practice

Guidelines that require management accountants to uphold four ethical standards: competence, confidentiality, integrity, and credibility.

Competence

An ethical requirement stating that management accountants must maintain appropriate professional expertise, follow laws and standards, and provide clear, accurate, and timely information.

Confidentiality

Accountants must keep information confidential except when disclosure is authorized or legally required.

Integrity

Accountants should avoid conflicts of interest, refrain from activities that could prejudice their duties, and refuse to engage in conduct that would discredit the profession.

Credibility

They must communicate information fairly and objectively, disclose all relevant information that could reasonably be expected to influence understanding.

Sarbanes-Oxley Act (SOX) of 2002

A U.S. law enacted to strengthen corporate governance and restore public confidence in financial reporting.

Corporate Governance

The system of rules, practices, and processes by which a company is directed and controlled.

Internal Control

A process designed to safeguard assets, ensure reliable financial reporting, promote efficient operations, and encourage compliance with laws and regulations.

Strategy

A company's plan for achieving its objectives and gaining a competitive advantage. It specifies how the firm will attract and retain customers and outperform competitors.

Competitive Advantage

The ability of an organization to produce goods or services more effectively or efficiently than competitors, allowing it to earn higher profits or customer loyalty.

Cost Leadership Strategy

A strategy focused on achieving the lowest production and distribution costs to offer products at lower prices than competitors.

Differentiation Strategy

A strategy focused on offering unique products or services that are perceived by customers as superior in quality, features, or service, allowing the company to charge premium prices.

Operational Excellence

Emphasizes efficient production and delivery of products and services at competitive prices with consistent quality.

Product Leadership

Focuses on innovation, high performance, and superior product features that create differentiation in the marketplace.

Customer Intimacy

Focuses on understanding and responding to individual customer needs better than competitors can.

Continuous Improvement (Kaizen)

An ongoing effort to enhance products, services, or processes through small, incremental changes rather than large-scale innovations.

Corporate Social Responsibility (CSR)

The idea that companies should act ethically and contribute to economic development while improving the quality of life of employees, their families, and the community at large.

Triple Bottom Line

A performance framework that evaluates a company's success based on three dimensions: profit (economic), people (social), and planet (environmental).

Sustainability

Operating in a way that meets the needs of the present without compromising the ability of future generations to meet their own needs. It integrates environmental stewardship, social responsibility, and economic performance.

Ethical Decision-Making Framework

A structured approach that helps management accountants identify ethical issues, evaluate options, and select actions that align with ethical and professional standards.

Corporate Code of Ethics

Formal guidelines that define appropriate behavior, promote ethical decision making, and help maintain a culture of integrity within an organization.

Corporate Culture

The set of shared values, beliefs, and behaviors that shape how employees interact and make decisions within an organization.

Managerial Accounting Value Chain Role

Managerial accountants add value by providing information that helps managers optimize operations, improve quality, reduce costs, and align resources with strategic goals.

SWOT Analysis

A systematic procedure for identifying a firm's critical success factors — its internal strengths and weaknesses and its external opportunities and threats. It's used to understand where a firm stands competitively and what it must focus on to sustain success.

Strengths and Weaknesses

These are internal factors within the firm. Strengths are skills or competencies the firm performs especially well (such as product lines, management, research and development, operations, marketing, or strategy). Weaknesses are internal areas needing improvement that may reduce competitiveness.

Opportunities and Threats

These are external factors that can influence the firm's success. Opportunities and threats are identified by analyzing the industry and the firm's competitors, including barriers to entry, intensity of competitor rivalry, pressure from substitute products, and the bargaining power of customers and suppliers.

Core Competencies

The unique strengths, skills, or technologies that a firm performs exceptionally well and that provide competitive advantage. Core competencies are the foundation for differentiation or cost leadership.

Critical Success Factors (CSFs)

Sometimes called value propositions, these are the key processes or activities in the firm that deliver value to the customer. They represent what a company must do well to succeed in its industry.

Value Proposition

The combination of benefits and costs that a firm offers customers — representing the value delivered.

Financial Factors (Balanced Scorecard Perspective)

One of the four key categories used to measure success, including profitability, liquidity, sales, and market value.

Customer Factors (Balanced Scorecard Perspective)

Measures performance from the viewpoint of the customer, including customer satisfaction and quality of products or services.

Internal Processes (Balanced Scorecard Perspective)

Metrics that evaluate how efficiently and effectively internal operations function, such as quality and productivity.

Learning and Growth (Balanced Scorecard Perspective)

Focuses on developing the organization's long-term capacity to improve and innovate, including employee skill development.

Governmental and Community Relations

An additional area of performance in a balanced scorecard framework covering relationships with regulators and the community.

Value Chain Analysis

A strategic analysis tool used to identify where value to customers can be increased or where costs can be reduced.

Phases of the Value Chain

The value chain consists of three main phases: Upstream, Operations, and Downstream.

Upstream Activities

Activities involved with suppliers, purchasing, and inbound logistics — everything before actual production begins.

Operations Activities

Internal production and services that transform inputs into outputs.

Downstream Activities

Distribution, marketing, sales, and customer support functions that deliver value to customers.

Steps of Value Chain Analysis

Identify value-chain activities, develop a competitive advantage, identify opportunities for added value, and reduce costs.

Competitive Advantage (Revisited)

An advantage a company gains by performing activities differently or more effectively than competitors.

Five Steps of Strategic Decision Making

Determine strategic issues, identify alternative actions, analyze alternatives, choose and implement, and provide ongoing evaluation.

Balanced Scorecard (BSC)

A strategic management framework that helps organizations align goals and initiatives by measuring performance across four perspectives.

Strategy Map

A visual representation of the cause-and-effect relationships among objectives within the balanced scorecard framework.

Execution of Goals

The process of implementing strategy through measurable objectives and performance indicators.

Differentiation and Cost Leadership in the Value Chain

Two core competitive strategies; differentiation focuses on unique value, while cost leadership focuses on being the lowest-cost producer.

Timeliness of Delivery

A customer-focused metric measuring how quickly and reliably the company delivers goods or services.

Product Innovation

Part of the Learning and Growth perspective; refers to developing new or improved products to meet changing customer needs and stay competitive.

Skill Development

Employee training and development efforts that build organizational competence and adaptability — central to the Learning and Growth perspective.

Employee Morale

The attitude and satisfaction of employees, which directly affects productivity, quality, and innovation within the Learning and Growth dimension.

Productivity

An internal process measure assessing how efficiently resources are converted into outputs.

Flexibility

The ability of the firm's processes to adapt to changes in product mix, volume, or technology — enhancing resilience and responsiveness.

Safety

An internal process measure tracking workplace safety and accident prevention, which affects efficiency, morale, and costs.

Profitability

A financial measure of how effectively a company generates income relative to its costs and resources used.

Liquidity

A financial measure of a company's ability to meet short-term obligations — often included as a balanced scorecard financial indicator.

Market Value

A financial measure reflecting the company's total perceived value by investors — influenced by profitability, growth, and reputation.

Customer Satisfaction

An outcome measure of how well customer expectations are met or exceeded, reflecting the company's success in delivering value.

Dealer and Distributor Relations

An aspect of the Customer perspective in the balanced scorecard, focusing on the strength of relationships and communication with intermediaries in the distribution channel.

Marketing and Selling

Key activities in the Customer perspective — ensuring product awareness, promotion, and conversion of interest into sales.

Product Competence

The combined measure of a firm's skill development, innovation, and execution — indicating how capable it is at producing high-quality goods or services.

Cost Accounting System

A system used to measure, record, and report information about costs incurred by an organization.

Job Costing

A cost system used when products or services are produced to customer specifications or in distinct, identifiable batches.

Process Costing

A cost system used when identical products are produced continuously or in mass quantities.

Job Cost Sheet

A record that accumulates all direct materials, direct labor, and applied overhead costs for a specific job.

Cost Object

Any item (product, service, department, project, etc.) for which costs are measured and assigned.

Direct Costs

Costs that can be conveniently and physically traced to a specific cost object.

Indirect Costs

Costs that cannot be easily or economically traced to a specific cost object; instead, they are allocated.

Direct Materials (DM)

Materials that can be directly and physically traced to the finished product.

Direct Labor (DL)

Labor costs that can be directly and physically traced to specific units of production.

Manufacturing Overhead (OH)

All manufacturing costs that are not direct materials or direct labor.

Indirect Materials

Materials used in the production process that cannot be conveniently traced to specific products.

Indirect Labor

Labor costs that support production but are not directly traceable to individual jobs.

Prime Costs

The sum of direct materials and direct labor.

Conversion Costs

The sum of direct labor and manufacturing overhead.

Work in Process (WIP) Inventory

The account representing partially completed goods that are still in production. It accumulates direct materials, direct labor, and applied overhead costs.

Finished Goods (FG) Inventory

The account representing completed goods awaiting sale.

Cost of Goods Manufactured (COGM)

The total cost of goods completed and transferred from Work in Process to Finished Goods during a period. It includes DM, DL, and applied OH.

Cost of Goods Sold (COGS)

The cost of finished goods that have been sold to customers during the period.

Manufacturing Cost Flow

The movement of product costs through the inventory accounts: Raw Materials → Work in Process → Finished Goods → Cost of Goods Sold.

Predetermined Overhead Rate (POHR)

A rate used to apply overhead costs to jobs. It is estimated at the beginning of the year using budgeted overhead divided by an allocation base such as direct labor hours, machine hours, or direct materials cost.

Applied Overhead

The amount of overhead assigned to production using the predetermined rate and actual activity level.

Actual Overhead

The overhead costs actually incurred during the period (such as utilities, depreciation, and indirect labor).

Overhead Allocation Base

A measure used to assign overhead costs to products or jobs (e.g., direct labor hours, machine hours, or direct labor cost).

Overhead Application

The process of assigning factory overhead to specific jobs based on the predetermined overhead rate and actual activity level.

Normal Costing

A costing method that uses actual direct materials and direct labor but applies overhead using a predetermined rate.

Actual Costing

A costing method that applies all actual direct materials, direct labor, and actual overhead costs to production.