Chapter 2

• Management accounting - is the process of analyzing interpreting and presenting financial statements using the statements prepared under financial accounting.
• objectives of management accounting

  1. performance measurement
  2. risk measurement
  3. right allocation of business resources
  4. timely presentation of financial statements to the management of a business
• performance measurement - the assessment of the performance of officials and employees in discharging their respective duties and responsibilities to contribute to the total business operating efficiency
• risk measurement - the risk that the business enterprise allowed in order to be efficient in undertaking its day-to-day operations. the company should be operating under a controlled risk.
• Right allocation of business resources - businesses are generally operating within limited resources. Thus, these resources must be properly allocated to maximize the earning potential and maintain, if not, improve financial health of the business
• scope of management accounting

  1. financial accounting
  2. cost accounting
  3. financial management
  4. financial statement analysis
  5. interpretation of data
  6. management reporting
  7. quantitative techniques
  8. inflation accounting
• financial accounting - provides the historical components of a financial statement that becomes a vital part of budgeting.

  management accounting - uses tools and techniques to make the financial information more usable in the decision making process
• cost accounting - provides a system of getting the detailed cost of producing a product whether it is job order or process costing. it is the backbone of a management accounting.
• financial management - concerned with maximizing stockholders wealth through proper planning and controlling of companies resources. it also deals with raising capital, either by borrowing or by issuance of shares of stocks
• financial statement analysis - it normally gives color to the financial statements. one can better understand the operations and discover ways of improving the operating performance of a company as well as discover new opportunities
• interpretation of data - this can be performed better by comparing previous year's performance with the current years performance.
• management reporting - this refers to the timely reporting of financial information to the decision makers.
• quantitative techniques - it includes queuing theory, transportation theory, sampling techniques, regression analysis, linear programming, etc.
• inflation accounting - the time value of money is also considered measurement of the increases of resources and bottom line figures with their present values are performed to determine the time value of money.
• management accountant and cost accountant - to properly account and control the cost of the product or services in order for the company to compute the markup and then come up with the selling price of the product or service.
• controller or the comptroller - the highest position in the finance department of a business enterprise
• controller - commonly used to denote the highest position in business for profit purposes. 
• comptroller - commonly used to denote the highest position in a non-profit business enterprise
• management accounting information system - a set of highly technological systems and procedures that gather information from a wide range of sources, compiling and converting these two are readable format for decision makers.
•  external users - are people or group of people outside the business organization

  examples:

  • potential investors - they want to know the financial health of the company and the potential return of their investment
  • creditors - they want to know the ability of the customers to pay their obligations on time
  • government - they want to know if the business pays the right taxes
  • research scholars - people who make financial study of a particular company 
• internal users - are people or group of people inside the business organization

  examples:

  • owner/s - they want to know the real health status of their business as well as the return of their investment
  • accountants - they will use the financial statement as part of their monitoring function
  • managers - they will use the financial statement for directing, controlling, planning, and for their daily decision making activities
  • auditors - they will use the financial statements as gauge in checking activities 
• accounting process

  • recording
  • classifying
  • summarizing
  • interpreting
• financial accounting

  1. it is intended for external users
  2. it generates general purpose financial statements
  3. it involves precise information
  4. it covers one accounting period
  5. it reports past transactions and financial reports of the entire business organization
  6. it is required by law
  7. it must conform to the generally accepted accounting principles
  8. it is based on objective data
• managerial accounting

  1. it is intended for internal users for planning, directing, and controlling
  2. it generates special purpose financial statements
  3. it involves detailed report
  4. it is made of interim reports (less than one year )
  5. it reports past transactions and usually compares it with planned operations
  6. it is required by management
  7. it conforms with rules set by management
  8. it allows subjective data
• certification available for management accountants

  1. certified public accountant - a license
  2. certified management accountant - a certification
  3. certified financial manager - a certification
  4. certified internal auditor - a certif