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MS02 - Management Accounting AND Basic Concepts

Accountancy 21 (Silliman University)

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LCRC :MS 02_MANAGEMENT ACCOUNTING AND BASIC CONCEPTS BATCH MAY 2020
Calamba Review Center - Laguna (LCRC)
2F MMCO Building, 8000 Lakeview Ph3 Angela Street, Halang, Calamba City Laguna, Philippines
Tel No. (02) 330-8617, (049) 523-6031; (02) 330-6057
CPA REVIEW (May 2020 Batch)
MAS Karim Abitago, CPA

MS02 – MANAGEMENT ACCOUNTING AND BASIC CONCEPTS

TOPIC OUTLINE
Management & Its
Functions
Basic
Concepts
Management
Accounting

Financial Accouting vs.

Management Accounting

Management Line vs. Staff

Functions
Accounting
Controller vs.
Treasurer Competence

Standards for
Integrity
Ethical
Conduct for
Management
Confidentiality
Accountants

Objectivity

LECTURE NOTES
BASIC CONCEPTS
Management Definition
Management is the process of planning, organizing and controlling tasks to achieve or meet the goals of
organization.
Functions of Management
(a) Planning – involves setting of goals and objectives of the firm, whether short-term or long-term,
evaluation and choosing of best alternatives in meeting the goals.
(b) Organizing / Directing – these are known as tackling activities. It is a function through which management
instructs, guides, and inspires the employees by communicating with them.
(c) Controlling – involves evaluation of actual performance whether it conforms to the planned results.
(d) Decision Making – involves determination of predictive information for making important business
decisions. NOTE: Decision making is inherent in all management functions.
Management Accounting Definition
A.K.A Managerial Accounting and Internal Accounting
It is the process of identification, measurement, accumulation, analysis, preparation, interpretation and
communication of information that assists in fulfilling organizational objectives.
FINANCIAL ACCOUNTING VS. MANAGEMENT ACCOUNTING
Areas of Comparison Financial Accounting Management Accounting
(1) Users of Information Internal & External (Primarily) Internal (Exclusively)
(2) Restrictive Guidelines PFRS / PAS / GAAP None
(3) Type of Information Monetary Monetary & Non-monetary
(4) Emphasis of Report Reliability (Precision) Relevance (Timeliness)
(5) Information Source Internal Data Internal & External Data
(6) Focus of Analysis Business as a Whole Various Segments
(7) Frequency of Reporting Periodic Whenever needed
(8) Time Orientation Historical Projected (Primarily) & Historical

LINE VS. STAFF FUNCTIONS

Line Authority
Managers with line authority are those people in the organization who are directly responsible for achieving
organizational goals. Line authority is represented by the standard chain of command starting with the board of

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directors and extending down activities of the organization that are carried out. Managers with line authority
exercises downward authority or the authority to give command.
Staff Authority
Staff authority belongs to those individuals or groups in an organization who provide services and advice to line
mangers. The concept of staff includes all elements of the organization that are not classified as line. Advisory
staffs have been used by decision makers from emperors and kings to dictators and parliaments over the course
of recorded history. Persons with staff authority exercise an upward or lateral authority.
CONTROLLER VS. TREASURER
Controllership is the practice of the established science of control which is the process by which management
assures itself that the resources are procured and utilized according to plans in order to achieve the company’s
objectives.
Treasurership is concerned with the acquisition, financing and management of assets of a business concern to
maximize the wealth of the firm for its owners.
NOTE: Generally, the above functions should NOT be combined on the same person.

Controller’s Functions Treasurer’s Function

Reporting and Interpreting Data Provision of Capital
Tax Administration Investor Relations
Government Reporting Short-term Financing
Management Audit Banking and Custody of Funds
Internal Audit Credit and Collections
Government Reporting Investments and Insurance
Economic Appraisal
Protection of Assets
STANDARDS FOR ETHICAL CONDUCT FOR MANAGEMENT ACCOUNTANTS
Practitioners of management accounting have an obligation to the organization they serve, their profession, the
public and themselves to maintain the highest standard of ethical conduct. In recognition of this obligation, the
Institute of Management Accountants has promulgated the following standards:
I. COMPETENCE
1. Maintain an appropriate level of professional leadership and expertise by enhancing knowledge and
skills.
2. Perform professional duties in accordance with relevant laws, regulations, and technical standards.
3. Provide decision support information and recommendations that are accurate, clear, concise, and
timely. Recognize and help manage risk.
II. CONFIDENTIALITY
1. Keep information confidential except when disclosure is authorized or legally required.
2. Inform all relevant parties regarding appropriate use of confidential information. Monitor to ensure
compliance.
3. Refrain from using confidential information for unethical or illegal advantage.
III. INTEGRITY
1. Mitigate actual conflicts of interest. Regularly communicate with business associates to avoid
apparent conflicts of interest. Advise all parties of any potential conflicts of interest.
2. Refrain from engaging in any conduct that would prejudice carrying out duties ethically.
3. Abstain from engaging in or supporting any activity that might discredit the profession.
4. Contribute to a positive ethical culture and place integrity of the profession above personal interests.
IV. CREDIBILITY
1. Communicate information fairly and objectively.
2. Provide all relevant information that could reasonably be expected to influence an intended user’s
understanding of the reports, analyses, or recommendations.
3. Report any delays or deficiencies in information, timeliness, processing, or internal controls in
conformance with organization policy and/or applicable law.
4. Communicate professional limitations or other constraints that would preclude responsible judgment
or successful performance of an activity.

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DISCUSSION EXERCISES
MULTIPLE CHOICE:
Basic Concepts
1. That kind of accounting concerned with providing information to management in making decisions about
the operations of the business
A. Responsibility accounting C. Management accounting
B. Cost accounting D. Correct answer no given
2. Managerial accounting applies to each of the following types of businesses except
A. service firms.
B. merchandising firms.
C. manufacturing firms.
D. Managerial accounting applies to all types of firms.
3. Which of the following management function is related in performance evaluation?
A. Planning C. Controlling
B. Organizing D. All of the above
4. In the planning and control process, what is the proper sequence of events?
A. Set goals, set objectives, develop plans, implement plans, evaluate performance
B. Establish a master budget, set standard costs, develop variance analysis
C. Develop engineered costs, develop pricing targets, calculate contribution margins
D. Identify variable costs, identify fixed costs, project the sales mix, determine breakeven
Financial Accounting vs. Management Accounting
5. Managerial accounting: (E)
A. focuses only on historical data.
B. is governed by GAAP.
C. focuses primarily on the needs of personnel within the organization.
D. provides information for parties external to the organization.
E. focuses on financial statements and other financial reports.
6. Which of the following statements is (are) true regarding financial and managerial accounting?
I. Both are mandatory.
II. Both rely on the same underlying financial data.
III. Both emphasize the segments of an organization, rather than just looking at the organization as a
whole.
IV. Both are geared to the future, rather than to the past.
A. I, II, III, and IV C. Only II and III
B. Only II, III and IV D. Only II
7. Financial statements for external users can be described as
A. user-specific. C. special-purpose.
B. general-purpose. D. managerial reports.
8. To distinguish between management accounting and financial accounting, the following statements are
correct, except
A. Management accounting, in view of its various integrated recipients should have a separate data
recording and retrieval system from financial accounting.
B. Financial accounting is bound by GAAP, and management accounting need not be in conformity with
GAAP.
C. Financial accounting can be regarded as the process while management accounting can be regarded
as the product of the process.
D. Management accounting output must be released on time so as not to erode its usefulness; Financial
accounting output can still be useful even when delayed.
9. How does managerial decision making compare with external performance evaluation?
Managerial Decision External Performance
Making Evaluation
A. Detailed Detailed
B. Detailed More aggregated
C. More aggregated Detailed
D. More aggregated More aggregated
10. Which of the following information below is related primarily to Management Accounting as compared to
Financial Accounting?
I. Internal users of information III. Focus of information is business as a whole
II. Monetary Information IV. Emphasizes relevance rather than precision
A. I only D. IV only
B. II and III only E. I, II and IV only
C. I and IV only

11. Financial and managerial accounting are similar in that both

A. have the same primary users.

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B. produce general-purpose reports.
C. have reports that are prepared quarterly and annually.
D. deal with the economic events of an enterprise.
K,W&W
12. Which of the following is most associated with managerial accounting?
A. Must follow generally accepted accounting principles.
B. May rely on estimates and forecasts.
C. Is prepared for users outside the organization.
D. Always reports on the entire entity.
13. The following characteristics refer to Financial Accounting except
A. Provides information to external users
B. Emphasizes on objective data
C. Has no externally imposed standards
D. Generates general purpose financial statements
14. Internal reports must be communicated
A. daily. C. annually.
B. monthly. D. as needed.
Line vs. Staff Functions
15. Management accountants generally exercise which type of authority?
A. Company. C. Line.
B. Functional. D. Staff.
16. ______________ is an example of a line position.
A. Controller for a merchandising company
B. Chief financial officer of a merchandising company
C. Store manager for Best Buy
D. Human resources manager for a community college
17. A staff position:
A. relates directly to the carrying out of the basic objectives of the organization.
B. is supportive in nature, providing service and assistance to other parts of the organization.
C. is superior in authority to a line position.
D. none of these.
18. The controller of a company or other organization is
A. a staff manager. C. an accountant, not a manager.
B. an operating manager. D. a natural manager.
19. I. Line managers are directly responsible for achieving organizational goals.
II. Line personnel give assistance to staff employees.
Which of the above statement is incorrect?
A. I only C. Both I and II
B. II only D. Neither I nor II
Treasurer vs. Controller
20. The treasurer function is usually not concerned with
A. investor relations. C. short-term financing.
B. financial reports. D. credit extension and collection of bad debts.
21. Controllership has attained special recognition in corporate management as business expands in
complexity and reach, and as the controller exerts influence for management to take organization’s goals.
Controllership and treasurership constitute corporate finance. These are among the controller’s traditional
functions:
1. Tax management. 5. Reporting to government regulatory agencies.
2. Financial reporting and interpretation. 6. Risk management.
3. Credit management. 7. Economic appraisal.
4. Sourcing and investing of funds. 8. Planning for control.
A. All eight items. C. Items 1, 2, 3, 4, 5, 7, and 8 only.
B. Items 1, 2, 5, 7, and 8 only. D. 2, 3, 5, and 7, and 8 only.
22. Which of the following is not usually a controller’s function?
A. Planning for control. C. Tax administration.
B. Protection of assets. D. Credit and collection
23. All of the following are treasurer’s function, except?
A. Short-term financing C. Both A and B
B. Insurance decisions D. None from A and B

Ethical Standards
24. A managerial accountant who communicates information objectively is exercising which of the following
standards?
A. objectivity C. competence

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B. integrity D. confidentiality
25. Which of the following statements is correct?
A. A certified public accountant can readily render management advisory services to the public.
B. A CPA with MBA and DBM degrees is automatically qualified to render management advisory
services.
C. Competence as a standard in the rendition of management advisory services by a CPA may be
equated to having excellent scholarly preparation to include the usual baccalaureate degree, an MBA
and other post graduate studies.
D. Adequate training and experience in both the analytical approach and process in a particular
undertaking are requisites for the CPA to be involved in a management advisory service
engagement.
26. Under which ethical standard of conduct does the managerial accountant have the responsibility to refuse
any gift, favor, or hospitality that would influence or appear to influence his or her decision?
A. competence C. integrity
B. confidentiality D. objectivity
27. Which ethical standard has been violated if an accountant fails to disclose relevant information pertaining
to a financial statement?
A. Competence C. Integrity
B. Confidentiality D. Credibility
- END OF HANDOUTS -

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