This course is the first in a two course sequence (Intermediate Accounting I and Intermediate Accounting II) that provides for the preparation and understanding of financial information. Topics include accounting theory and practice, the conceptual framework of United States (U.S.) generally accepted accounting principles (GAAP), recognition of economic transactions, the preparation and analysis of financial statements and the related disclosures. Intermediate Accounting I focuses on the role of accounting as an information system and the measurement, recognition, presentation, and disclosure of economic transactions focusing on the following: basic financial statements, time value of money, cash and receivables, inventories, property, plant, and equipment, depreciation and impairment, and current liabilities and contingencies.
This course in financial accounting acquaints students with the "language of business" and the concepts and practices of accounting in order to understand, interpret, and analyze the financial accounting reports of economic entities. Topics include: economic context of accounting; introduction to basic financial statements with emphasis on the statement of cash flows; measurement fundamentals; analysis of financial statements; cash; receivables; inventories; investments in equity and debt securities including Consolidations; long-lived assets; current and long-term liabilities; stockholders' equity; and time value of money concepts and computations for decision making: international accounting practices are incorporated into every topic. This is not a bookkeeping course.
Accountants capitalize manufacturing costs to obtain proper matching. The matching concept is pervasive in accrualaccounting and requires that costs and benefits are matched or brought together on the income statement. In a production setting, the idea is to match the costsof producing a product (or service) against the benefits, i.e., revenue derived from the sale. When the inventory is sold, these costs are charged to an expenseaccount referred to as cost of goods sold. At the end of the accounting period, cost of goods sold is closed to the income summary where, theoretically,matching takes place. Remember that unexpired costs represent assets. Expired costs represent expenses. When the inventory is sold, we say these costs haveexpired, i.e., the benefits to be obtained (from the effort that generated the costs) have been recognized. Thus, manufacturing costs become expenses when theyreach cost of goods sold, but represent assets until the sale takes place.
In traditional accounting systems, selling and administrative costs are expensed in the period in which they areincurred. Theoretically, if there are future benefits associated with a cost, the cost should be capitalized as an asset rather than expensed. Certainly thereare some future benefits associated with costs such as research and development, training, market promotion and advertising. However, these costs are expensed asincurred because it is difficult if not impossible to relate them to the future benefits. As a result, these costs are referred to as period costs.
This course provides an introduction to the role of financial and nonfinancial information for planning and control decisions, emphasizing the strategic role of the management accountant in the organization. It emphasizes strategy and the application of concepts and practices of management accounting on economic and noneconomic decisions. Topics include: cost behavior and estimation; cost analysis for planning and control decisions including value chain analysis, target costing, quality costs, customer value measurement systems, and benchmarking; cross-functional teams; activity-based management; and capital budgeting.
The major areas of within the accounting are: Financial Accounting, Managerial Accounting/Cost Accounting and Auditing- Public Accounting Managerial accounting is concerned with the use of economic and financial information to plan and control the activities of an entity and to support the management in planning and decision-making process....
Management accounting is the broadest area of accounting and includes tax accounting, financial accounting, managerialaccounting and internal auditing. Each of these areas is discussedbelow and illustrated in Exhibit 1-1. Management accounting is expanded in Exhibit 1-2 to include cost accounting, cost management, activity management andinvestment management. The concept definitions and relationships between these branches of management accounting are also discussed below. The CMA designationthat appears in the exhibits represents "certified management accountant". The requirements for obtaining this professional credentialare outlined in an appendix to this chapter.
Prior to 1950, cost accounting courses emphasized generating cost information for tax and financial accountingpurposes. These courses had a fairly narrow orientation towards inventory valuation for external reporting. However, in 1950 a textbook by William Vatterplaced more emphasis on the internal user of accounting information, rather than the external user. After 1960, most cost accounting textbooks had adistinctive managerial decision orientation. Vatter’s work was definitely a turning point. Two other very influential books, although they are nottextbooks, were published in 1987 and 1988. These works include by H. Thomas Johnson andRobert S. Kaplan and edited by Callie Berliner and James A. Brimson. These two booksrepresent another turning point for management accounting. Both publications sharply criticize traditional accounting and propose substantial changes ininternal accounting systems. These important publications introduced the concepts of cost management, activity management and investment management thathave become important components of management accounting.
Cost management is a term that has been popularized by CAM-I (Consortium of Advanced Management - International).Cost management is said to be a more comprehensive concept than cost accounting in that the emphasis is on managing and reducing costs rather than reportingcosts. In other words, it is a long run proactive approach ratherthan a short run reactive approach. For example, a great deal of attention is given to reducing costs at the design stage of a product's life cycle ratherthan simply attempting to measure and control cost during the production stage. James Brimson, who originally served as CAM-I's Cost Management Systems (CMS)project director, defines cost management as, "the management and control of activities to determine an accurate product cost, improve business processes,eliminate waste, identify cost drivers, plan operations, and set business strategies. Based on Brimson's definition, the concept of activitymanagement is part of the cost management discipline originally defined by CAM-I, although the term cost management might be interpreted differently as indicated below.
The purpose of this chapter is to introduce the concepts that provide a foundation for our excursion into thedomain of cost and managerial accounting. More specifically, the objectives are to: 1) discuss the difference between conceptual definitions and operationaldefinitions, 2) provide conceptual definitions for the three broad specialty areas of accounting including public accounting, management accounting andgovernmental accounting, 3) outline the components of management accounting to identify the focus and scope of this book, 4) discuss the interactiverelationships between systems, variability, performance measurements and human behavior, 5) define and discuss the concept of control, 6) present some basicterminology, and 7) introduce an underlying framework for the study of management accounting concepts and techniques.
Activity management, or activity based management, places emphasis on continuously improving the activities and tasks,or work that people perform in an organization. The main idea is to find and eliminate waste. Conceptually, activity management is somewhat different fromcost management in that it focuses on the waste itself, not the cost of waste.It is a process oriented approach rather than an accounting results oriented approach. Activity management also has a long run, rather than a short runemphasis. Although activity management is part of the cost management system (CMS) advocated by CAM-I, it is important to make a distinction between managingcosts (accounting results) and managing activities (processes or work). This distinction is important because placing too much emphasis on costs (or anyother short run results oriented measurement) may cause managers to make decisions that reduce costs, but are not in the best interest of theorganization's long run performance and competitiveness. A few examples include a manager's decision to reduce research and development, employee training, andpreventive maintenance just to improve short term accounting results. This conceptual distinction provides the reason cost management and activitymanagement are presented as separate concepts in Exhibit 1-2.