financial and managerial accounting epub

financial and managerial accounting epub

Exploring the Fundamentals of Financial and Managerial Accounting: An Epub Guide

1. Introduction to Financial and Managerial Accounting

Unit of Measure Assumption: Good accounting is based on objective, can be recorded, and is expressed in financial terms – dollars in the United States. Transactions that cannot be measured in terms of money are not included in accounting records. Historical cost is the measure used in external financial statements in the United States, and stable dollar assumptions make financial data more meaningful. Basic accounting concepts provide a blueprint for the financial statements. Although auditors do not actually prepare the statements, their work provides credibility to the financial reports.

Economic Entity Assumption: Business purchases are made by Smith, not by Smith and his wife. The economic information on Smith’s books is for Smith’s sole proprietorship, not his personal affairs. Economic data belong to economic entities; businesses are economic entities.

Accounting is about decision making. Financial accounting presents information to the public about the economic health of an enterprise. Management uses managerial accounting information for planning the activities, directing the operations, and making decisions. Financial accounting emphasizes external financial statements, while managerial accounting stresses internal financial statements and special reports. Basic assumptions, measurements, and concepts underlie the process used to report financial information.

2. Key Concepts and Principles in Financial Accounting

Summarized structured information of the accounting guide can be used as an efficient study tool, as well as an additional source of knowledge for managers using IFRS from the users’ perspective. Topics include assets, liabilities, and equity, separate legal entity, transactions, accounts, rules of debit and credit, income and expenses, separate recognition rule, accrual basis of accounting, economic reality, store of wealth and unit of measure, going concern assumption, materiality, accrual concept, realization principle, consistency principle, matching principle, cost principle, historical cost, fair value, full disclosure, conservatism principle, matching and conservatism, see also.

It guides a reader through the fundamentals of financial accounting structure using an original concept-driven content. The CfiA epub guide provides selected concepts and principles, followed by practical examples and exercises. It focuses on the content and structure and how the important notions are linked.

3. Key Concepts and Principles in Managerial Accounting

Management accounting information reports the financial data needed to conduct the ongoing, day-to-day operations of the entity and to respond to mass-customized information requests, time-sensitive investment decisions, and specific professional or local governing institution guidelines or requirements. It connects the operational, tactical, and strategic management processes with a balanced set of historical, future, hard, and soft information for multidisciplinary decision-making and performance measurement. The information can be provided in the form of a balanced scorecard, a performance dashboard, or through a continuous feedback and feedforward improvement system. In nonbusiness settings, management accounting information often deals with mission, volunteer incentives, and merger and investment policies. The only real limits to the design of a useful management accounting system are the quality, timeliness, and relevant costs and benefits of the alternative information sources. These are your performance measures and information gathering challenges in management accounting. The designation of the organizational unit responsible for developing, distributing, and maintaining the management accounting information does not resolve itself automatically through the normal delegation of financial accounting tasks. You have a unique opportunity and challenge in helping to transform both management and accounting tasks in your organization to make the management accounting information more timely, more relevant, more credible, and more actionable.

The “fundamentals” of financial accounting are the basic concepts and principles underlying the preparation and use of financial accounting information. These concepts and principles are also important to understanding, interpreting, and analyzing the financial results reported by other entities, including not-for-profit organizations, governments, and businesses that provide services or engage in specialized commercial activities. The content of this chapter is designed to help you develop a basic understanding of the basic accounting concepts and principles relating to the preparation and use of financial accounting information. Some of these concepts and principles might be different from what you think they should be, whereas others are consistent with your initial or existing perceptions. Understanding and applying these concepts and principles is critical to your use and interpretation of financial accounting information. They provide the economic and social intelligence system on which other users, including you as investors, creditors, employee or labor unions, government agencies, consumers, and customers, rely to make informed management, economic, and strategic resource allocation decisions.

4. Analyzing Financial Statements and Reports

Corporate performance is analyzed in a variety of ways, including computing return on equity (ROE) and return on investment (ROI). Today, most analysts employ a technique called ratio analysis to help them in their evaluation of financial reports. Ratio analysis relies on calculations from analyzed categories with an emphasis on past and present comparisons. A variety of financial ratios are derived across five specific areas. Typical questions that ratios answer within each area include how well are assets being employed to generate sales, are operations effective, can liabilities become due as planned, have operations been efficient, and are operations causing increases in earned capital? Ratio analysis also incorporates common-size analysis so that the analyst can compare reports to reports and different companies against each other. Each financial statement is then related to each other to provide information missing from standalone analysis.

This chapter includes information regarding corporate performance, computing return on equity, computing return on investment, understanding the analytical process, understanding ratio analysis types of ratios, determining activity ratios, determining liquidity ratios, determining leverage ratios, determining profitability ratios, determining solvency ratios, understanding the common-size analysis process, and understanding the statement relationship.

5. Cost Behavior and Decision-Making in Managerial Accounting

To identify cost behavior is relatively easy when plotting a graph of cost against the volume of business activity. However, sometimes it is very difficult or impossible. A cost-volume-profit (CVP) analysis can be conducted to observe the cost behavior. The concepts cost-volume-profit; selling price; cost; total revenue; variable-cost ratio; break-even point, break-even analysis; contribution margin; margin of safety; margin of safety ratio; operating leverage; margin of safety is helpful to conduct the cost-volume-profit analysis. CVP analysis helps business people think about the interrelationship of sales, production, and their revenues and costs. It also helps business people think about the way to improve efficiency and better competitive advantage. CVP analysis is a key technique to price-setting and product-mixture decisions. It also helps pinpoint the critical part to grow businesses and stay profitable.

Cost behavior admires four costs: total fixed cost is the cost that does not change with changes in the volume of activity within relevant limits. Total fixed cost is constant in the short run regardless of the level of activity. Total variable cost is a cost that varies in proportion to changes in the level of activity within relevant limits. Total variable cost increases as the level of activity increases and decreases as the level of activity decreases. Mixed (Semi-Variable) costs commonly appear to be partially fixed and partially variable. This means that mixed costs can be divided into a portion that is fixed and a portion that is variable; the variable portion is not always directly proportional to the changes in the level of business activity. Step costs are costs that remain constant within a given range of activity, increase by a discrete amount at some specific level of activity, and remain constant at the new level of activity within a given range.

One important question an accountant has to answer is cost behavior. How do costs react to changes in business activities? How do sales, production, labor hours, utilities, and other business activities affect total costs? Understanding cost behavior is crucial in accounting. It provides useful information to managers in their decision-making. By knowing how costs behave, managers can make better forecasts and plans; think critically about using resources efficiently and effectively; and control costs better.

Introduction