Horngren’s Cost Accounting A Managerial Emphasis 17th Global Edition by Srikant M. Datar solution ma
CHAPTER 1
THE MANAGER AND MANAGEMENT ACCOUNTING
See the front matter of this Solutions Manual for suggestions regarding your choices of assignment material for each chapter.
1-1 Management accounting information is specifically provided for the internal usage of organizations, and the preparation and presentation of management accounting reports are not governed by standardized rules and regulation. Management accounting reports have no definite time frame for preparation. Management accounting reports combine historical data with present data for the purpose of influencing the future. Thus, it is considered futuristic in nature. The objective of management accounting is to provide financial information to managers to enable them to effectuate their planning, control and decision-making responsibilities.
Financial accounting reports focus on providing standardized information to external users or those that do not have access to detailed private information of the entity. The users of financial accounting reports comprise existing and potential shareholders; employees–both within and outside the organization; financial and investment analysts; the government; the company’s auditor; the public at large to mention a few. The preparation of financial accounting statements is governed by rules and regulations commonly referred to as generally accepted accounting principles (GAAP). These reports are usually presented to stakeholders on an annual basis. Due to the historical nature of financial accounting reports, the degree of estimation and approximation allowable in the course of writing the report is limited. The objective of financial accounting reports is firstly to fulfil the doctrine of stewardship in accounting and secondly to meet the statutory or regulatory requirement. It also provides information primarily to external decision-makers (even employees might need it for their private decision-making) about providing resources to the entity.
Note: Financial accounting is regulated in some jurisdictions by the International Financial Reporting Standard (IFRS) for private firms and the International Public Sector Accounting Standards (IPSAS) in the government sector. There are also national accounting standards for preparation of financial information. This therefore implies that management accounting reports are influenced by guidelines or legislations. For example, IAS 2 outlines how inventories can be valued, and what production costs should be included in inventory valuation.
1-2 Financial accounting is governed by generally accepted accounting principles (GAAP). Management accounting does not suffer such restrictions to these principles. The net effect is that
Note: Under the IFRS jurisdictions, the preparation of financial statements must comply with both the format prescribed by the Standards and further disclosures required. This is not the case with management accounting.
1-3 Management accounting information helps manager to develop, communicate, and implement strategies by answering the following questions, which could contribute to an effective formulation of the strategies:
THE MANAGER AND MANAGEMENT ACCOUNTING
See the front matter of this Solutions Manual for suggestions regarding your choices of assignment material for each chapter.
1-1 Management accounting information is specifically provided for the internal usage of organizations, and the preparation and presentation of management accounting reports are not governed by standardized rules and regulation. Management accounting reports have no definite time frame for preparation. Management accounting reports combine historical data with present data for the purpose of influencing the future. Thus, it is considered futuristic in nature. The objective of management accounting is to provide financial information to managers to enable them to effectuate their planning, control and decision-making responsibilities.
Financial accounting reports focus on providing standardized information to external users or those that do not have access to detailed private information of the entity. The users of financial accounting reports comprise existing and potential shareholders; employees–both within and outside the organization; financial and investment analysts; the government; the company’s auditor; the public at large to mention a few. The preparation of financial accounting statements is governed by rules and regulations commonly referred to as generally accepted accounting principles (GAAP). These reports are usually presented to stakeholders on an annual basis. Due to the historical nature of financial accounting reports, the degree of estimation and approximation allowable in the course of writing the report is limited. The objective of financial accounting reports is firstly to fulfil the doctrine of stewardship in accounting and secondly to meet the statutory or regulatory requirement. It also provides information primarily to external decision-makers (even employees might need it for their private decision-making) about providing resources to the entity.
Note: Financial accounting is regulated in some jurisdictions by the International Financial Reporting Standard (IFRS) for private firms and the International Public Sector Accounting Standards (IPSAS) in the government sector. There are also national accounting standards for preparation of financial information. This therefore implies that management accounting reports are influenced by guidelines or legislations. For example, IAS 2 outlines how inventories can be valued, and what production costs should be included in inventory valuation.
1-2 Financial accounting is governed by generally accepted accounting principles (GAAP). Management accounting does not suffer such restrictions to these principles. The net effect is that
- Management accounting allows managers to charge interest on owners’ capital to help appraise a division’s performance, whereas such a charge is not permissible under GAAP.
- Financial accounting reports must be prepared in accordance with statutory requirements (Companies Law, IFRS, IPSAS, GAAP, etc.), whereas no such legal requirements are there for management accounting.
- Financial accounting reports focus more on historical information, whereas management accounting places greater emphasis on reporting future costs and revenues.
- Management accounting reports are produced at intervals that are more frequent and are less accurate as they are based on estimates.
- Management accounting can include assets or liabilities (such as “brand names” developed internally) not recognized under GAAP.
- Management accounting can use asset or liability measurement rules (such as present values or resale prices) not permitted under GAAP.”
Note: Under the IFRS jurisdictions, the preparation of financial statements must comply with both the format prescribed by the Standards and further disclosures required. This is not the case with management accounting.
1-3 Management accounting information helps manager to develop, communicate, and implement strategies by answering the following questions, which could contribute to an effective formulation of the strategies:
- Who are our most important customers, and what critical capability do we have to be competitive and deliver value to our customers?
- 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?
- Will adequate cash be available to fund the strategy, or will additional funds need to be raised?