Accounting for leaders
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accountingboards.docxFinancial and Managerial Accounting
Differences between financial and managerial accounting
Financial and managerial accounting are distinct accounting processes that determine the success of an enterprise. Though the terms are different, many people with little accounting information use them synonymously. Financial accounting is a branch of accounting that specializes majorly on maintaining an organization’s financial transactions (Weygandt & Kieso, 2015). The branch thus focuses on keeping track of financial records of an organization from the transactions done. Managerial accounting is also a branch of accounting, but it focuses mainly on identification, evaluation, interpretation, and communication of information between managers within an organization with the aim of accomplishing the organization’s objectives (Weygandt & Kieso, 2015). Managerial accounting thus focuses on ensuring that the organization achieves its set goals by ensuring that relevant information is available to aid the organization managers in making management decisions effectively.
Normally, managerial accounting information is used by the internal management of an organization to make managerial decisions, while financial accounting statements are used externally by outsiders such as customers, investment analysts, and competitors to guide them in making decisions on whether to do business with the organization. While financial accounting provides financial statements on the profitability of the enterprise, managerial accounting reports on the issues hindering the organization’s goal accomplishment, and proposes remedies for rectifying the issues (Weygandt & Kieso, 2015). Another difference is that financial accounting reports require to be maintained at particular levels of precision, and the accuracy of the financial statements have to be confirmed while managerial accounting deals with estimates and propositions. Also, financial accounting requires the accountants to comply with particular accounting rules since the information is compiled for external purposes while managerial accounting does not require the involved parties to comply with specific accounting rules because the information is used internally for decision making.
Rules that need to be followed under either method
Accountants in managerial accounting use different procedures in accounting for the managerial decisions, and thus there no specific rules or regulations that ought to be followed. Also, different businesses have different operations, requiring different rules, and thus no specific rules or standards exist in managerial accounting. Conversely, financial statements from financial accounting are used by different categories of people to assess the organization’s value for themselves, and thus there are common rules known as accounting standards and General Acceptable Accounting Principles (GAAP), that ensures that companies provide accurate, comparable, and reliable information to the outsiders (Horngren et al., 2012).
The accounting rules under financial accounting include the following:
· The regularity principle: Accountants must adhere to all the GAAP regulations.
· The consistency principle: Accountants should comply with the application of similar standards during the entire reporting process to avoid errors and inconsistencies (Horngren et al., 2012). This principle expects accountants to explain any reason that might have caused them to change any standard.
· The sincerity principle: According to this principle, accountants should provide accurate information about the organization’s financial position.
· The consistency principle: This principle requires accountants to use consistent financial reporting procedures.
· The non-compensation principle: This principle requires accountants to adhere to transparency while reporting the positives and negatives in the financial statements without debt compensation expectations (Horngren et al., 2012).
· Prudence principle: The financial statements should not be overestimated or underestimated.
· Continuity principle: After the valuation of the organization’s assets, this principle assumes that the organization will continue in operation for the next fiscal year.
· Materiality principle: Accountants should always strive to disclose all the financial data in the financial reports fully.
· The principle of utmost good faith: This principle is applied within the insurance industry whereby it presumes that all parties will remain loyal in the financial transactions (Horngren et al., 2012).
References
Horngren, C., Harrison, W., Oliver, S., Best, P., Fraser, D., & Tan, R. (2012). Financial accounting. Pearson Higher Education AU.
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2015). Financial & managerial accounting. John Wiley & Sons.
Week-2
Week - 2 Discussion
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There are many different accounting certifications which can be used to enhance a person’s career and contribute to the achievement of career goals. Each of these accounting certifications is slightly unique and they address particular career focuses depending on the career objectives of an individual. Types of accounting certifications include Certified Public Accountant (CPA), Certified Management Accountant (CMA), Certified Financial Analyst (CFA), and Certified Internal Auditor (CIA) among others. CPA is the oldest, most popular, and most respected accounting certification in the accounting industry. A CPA certification is only given to a licensed accountant who is allowed to write audit reports and advice on the financials of a company. On the other hand, CMA certification focuses on accounting management for companies covering topics such as financial planning, decision-making, performance, and control (Ng, 2019). These topics are never covered in a CPA certification and thus this designation is important for candidates who pursue company internal management and the executive roles.
What is the difference between the two?
Each of these certifications is unique and has different career paths. CPA areas of focus include accounting and auditing, financial accounting, regulation, and reporting. CMA has a different focus since professionals specialize in asset, performance, and financial management. Another difference between the two certifications related to the requirements needed for one to be qualified to pursue the certifications. An individual who wants to become a CMS needs to have a bachelor’s degree in business, economics, or accounting and should be a member of the Institute of Management Accountants (IMA) (Boyd, n. d). This is different for a CPA whereby one can enroll in a CPA program without necessarily having an undergraduate degree.
Which one is more applicable to Managerial Accounting?
A person who has a CMA certification has an edge in Managerial Accounting as compared with one who has a CPA. This is because CMA emphasizes building skills which are needed in financial decision making, financial reporting, and planning and management of performance. A CMA certification improves the management skills of a professional which improves a person’s ability to make strategic business decisions which affect a company’s performance and financial decisions as well.
Which one is more applicable to Financial Accounting?
CPA is more applicable in Financial Accounting since it focuses on public accounting and general accounting whereby professionals are expected to work on financial reporting, income taxes, and audits for individuals and public and private companies. A person which a CPA can perform different roles in Financial Accounting including providing financial advice to clients, auditing and preparing financial reports, and ensuring that regulations and laws are followed in accounting.
References
Kenneth W. Boyd, (n. d).CMA vs CPA | which is Better for Your Career, Salary, and Wallet?Retrieved from https://www.ais-cpa.com/cma-vs-cpa/
Stephanie Ng, (2019). CMA vs CPA: Which Qualification is better?Retrieved from https://ipassthecmaexam.com/cpa-vs-cma/
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Week-3 Discussion
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Requirement 1
The first alternative involves Jackson doing nothing regarding the issue. This course of action is not appropriate. Why? As an accountant, the most basic ethical trait is honesty, and this is evident in Jackson’s initial reaction of pointing out the issue to Mary Brown, the corporate controller. From the foregoing, not taking action concerning the under applied overhead is not ethical as it will lead to dishonest values both to the external auditors as well as the Audit Committee of the Board of Directors.
The second alternative involves making attempts to convince Brown to make adjustments as well as informing the external auditors of her actions. Attempting to convince Brown to make adjustments is an appropriate action. This is because Jackson will be communicating to his direct superior without overstepping her authority. In addition, diagonal communication is good for any business and this case would not be different. On the other hand, Jackson informing the external auditors of Brown’s actions is not an appropriate action. This is because by doing so, Jackson might jeopardize the job or even career of Brown, fellow employee, as well as the existence of the business itself. Jackson should therefore desist from informing the external auditors of Brown’s actions.
The third alternative involves informing the Audit Committee of the Board of Directors and giving appropriate accounting data. This course of action is appropriate. First, the issue of under applied overhead needs to be addressed as it results in less income as well as incorrect information to external auditors. Therefore, Jackson should inform the Audit Committee of the Board of Directors and by doing so it will result in both solving the problem as well as keeping the problem internal. This action will also ensure that Brown’s actions are corrected without necessarily denting her job or career.
Requirement 2
The first step Jackson should take is to compute the accounting data again for confirmation purposes and gather the appropriate accounting information that supports his findings. Jackson should then approach the next level of authority, in this case the Audit Committee of the Board of Directors, and present them with the gathered data. In addition, Jackson should explicitly explain the effects of the under applied manufacturing overhead and the need for its adjustment. By following these steps, Jackson will not only have reported the matter to the correct authority, the Audit Committee of the Board of Directors, who will make the final decision on the way forward, but also helped in keeping the matter internal to the company.
References
McLaughlin, I. A. (2016). Corporate Governance. Case study and analysis.
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Week -4 Discussion
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The publicly traded manufacturing company in consideration is Dean Foods Company (DFC). DFC Company is a food and beverage company that focuses mainly on dairy products – it is one of the largest dairy companies in the United States. DFC produces several products at both a regional level and national level. The product we are concerned with is the Creamland brand that produces ice cream products. Based on the ice cream products from my research, DFC Company uses product costing to allocate the total cost of production - the subsequent discussions will serve to justify this claim as well as expound on both the production of ice cream products and the process costing concepts learned.
To begin with, process costing is a method that allocates production costs to a sequence of steps or departments in production. With this in mind, note that the production of ice cream involves a series of steps in which the factors of production (labor, raw materials and overhead) are applied differently at each stage (Fisher & Krumwiede, 2015). The basic stages include preparation of the ice cream mixture, adding liquid flavors, colors and freezing and adding fruits and bulky flavorings and then packaging as desired. In this procedure, different materials, labor and overhead are introduced differently (in terms of quantity and type) in the distinct processes of the entire manufacturing process. From the foregoing discussion, process costing is the ideal method for allocating costs; it is able to attribute the costs to the different production processes involved in the production. In addition, different departments, whereby the output of one department is the input of another department, handle the different processes. In so doing, the costs in terms of raw materials, labor and overhead are easily accounted for department wise or process wise – justifying why the DFC Company uses process costing in the production of ice cream.
The nature of ice cream production is such that the costs associated with individual products is difficult and not economically feasible to obtain. In this case, process costing; weighted average costing method in particular, comes in handy. How? The weighted average costing method involves the analysis of the costs of goods available for sale and the number of units available for sale (Weygandt, Kimmel & Kieso, 2015). Through process costing, the accumulated costs in each department in terms of labor, material and overhead can be calculated and summed up to obtain the costs of goods available for sale. The weighted average method, which involves dividing the costs of goods available for sale by the number of units available for sale, obtains an estimate of the cost of each good produced. From the explanation on the weighted average costing method, it is evident that DFC Company ought to use process costing since the costs of individual ice cream product cannot be obtained otherwise.
In the production process, there is the need to account for the costs incurred by each department in terms of raw materials used, labor and overhead. Process costing enables this through the cost per equivalent unit calculation. By accounting the costs incurred in the different processes in the departments, budgeting for the next production processes is possible.
Briefly, process costing is a method of allocating costs to a production process in which costs are assigned to the series of steps or processes. In the production of ice cream products by the Dean Food Company, the production process consists of a series of steps that result in homogenous products, which is an ideal case for using process-costing method.
References
Fisher, J. G., & Krumwiede, K. (2015). Product costing systems: finding the right approach. Journal of Corporate Accounting & Finance, 26(4), 13-21.
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2015). Financial & managerial accounting. John Wiley & Sons.
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week-5 Discussion
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Activity Based Costing
This is a method of assigning costs to products. Activity-based costing helps to assign these costs by drawing a relationship between costs, activities which are classified as overheads and manufacturing outputs (Bahnub, 2010). This is a method that has been adopted over the traditional methods of assigning costs which focused more on machine hours since it provides a more rational way of assigning these costs.
This method of costing yields more accurate results as compared to traditional methods of costing because the basis of cost assignment is the definite consumption level of each separate product. On top of the accuracy advantage, this method of costing is not very complicated because its process only involved identifying overhead activities and assigning costs to each of these activities and then taking these costs and assigning them to products on the basis of whether the product makes use of that activity (Bahnub, 2010). If the product does not consume that activity then the cost is not assigned.
The only complication that comes with assigning costs using this method is the assigning of costs for various overhead activities especially the indirect costs. Costs such as salaries and wages to employees can be difficult to assign to a product and for this reason, it is best suited for manufacturing activities alone (Goektuerk,2007). The use of this costing method for manufacturing processes of any organization can be very beneficial because it produces more reliable information on costs compared to traditional methods and it became a lot easier to classify various costs in the production process when this method is used (Goektuerk, 2007).
Case Study
1. Is the controller, Erin Jackson, acting ethically?
Yes. The controller is being ethical manly because his decision and the actions he is taking are guided by the ethical principle of integrity. First, he discovers the inaccuracy in the costing numbers of the electric motor and the first action he takes is revealing the truth and this shows his value for honesty. His morality is however greatly displayed in his conversation with his friend where he refuses his friends offer to manipulate the numbers does not only show his value for honesty but also shows that he holds hold moral principles which are strong since despite the persuasion he stands by his truth. Offering to check his calculation one more time to ensure accuracy is also a show of care and honesty.
2. Is the production manager, Alan Tyler, acting ethically?
The production manager, in this case, is the one who is not acting ethically. This is seen first in the fact that he is pretty upset by the discovery of the truth. It seems like he knows about the inaccuracy in costing for the electric motors but had made the decision to keep them that way and was distorting the costs on purpose so that he could not lose his job. Further, he makes the request to Erin for him to manipulate the numbers since no one will know. All these acts show that Alan is deceptive and this is not an ethical value.
3. What are Jackson’s ethical obligations? To the president? To her friend?
According to the law and probably organizational policies, accuracy and truthfulness in reporting are a requirement. Employees are expected to practice honesty and transparency in reporting and for this reason, Jackson has the ethical obligation of showing compliance by correcting inaccuracies in cost reports which give misleading information that the production process is profitable whereas it is not. His ethical obligation to the president is to uphold the legal and ethical standards of reporting. To his friend, the only ethical obligation that Jackson has s to ensure that the figures he produced on his analysis are accurate to ensure that he does not put Alan in trouble for no reason.
References
Bahnub, B. (2010). Activity-based management for financial institutions : driving bottom line results. Hoboken, N.J: John Wiley.
Goektuerk, H. (2007). Activity-Based Costing (ABC) - advantages and disadvantages How ABC can be applied to institutions of higher education. München: GRIN Verlag GmbH.
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week-6 Discussion
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As was mentioned in the Week 4 discussion, Dean Foods Company is a food and beverage organization which mainly focuses on manufacturing dairy products. It is considered as one of the largest dairy firms across the United States. The company is known to produce numerous products both at the national and regional level. Some of the main products of Dean Foods include milk, ice cream, juice, teas, and dairy products. In the United States, milk is processed both under a national and regional brand. They have more than 50 regional and local brands. In addition to fluid milk, the company is also distributing bottled water, refined products, and other essential products (Dean Foods Inc., 2019).
For the organizational leaders of the company, cost accounting is crucial for measuring and analyzing the cost associated with the products, projects as well as production to ensure that correct amount are reported on the financial statements of the company. With an appropriate cost accounting, the leaders will be aided in the decision-making process by enabling easy calculation, evaluation and monitoring of the associated costs. Some of the related expenses that the company would incur include the following:
Direct cost – this is the costs incurred in the production of their goods and services. The company produces numerous products and services that it distributes to the consumers across the country. A direct cost includes labor, materials, expense or the distribution cost associated with producing its products (Drury, 2014). These costs can be easily traced to a product. For example, the company’s employee may spend 2 hours preparing ice cream. The direct costs associated with the ice cream are the wages that the employees are paid and the components used to produce the ice cream.
Indirect cost – this is the costs unrelated to the production of the goods or services. The cost cannot be easily traced to a given product or service, activity, or project. For Deans Food Company, it is important to note that there is an electricity bill for all the products made in the company. When the bill is paid, no single products can be associated with it (Garrison et al., 2014).
Fixed cost is another cost that accounting leaders must be aware of. In most cases, fixed costs do not vary with the number of goods or services that Dean Foods produce over a short period. For example, if the Dean Foods leases a machine for production for say, one year, it would be obliged to pay the monthly cost of hiring the machine irrespective of how many products the machine makes (Horngren et al., 2015). Therefore, the lease payment is regarded as a fixed cost, and it remains unchanged whether the company makes a loss or profit.
Variable costs are the expenses that fluctuate as the level of output production changes. It changes with regard to the number of products that the company produces. As the production volume increases, the variable cost also increases and falls as the production cost also decreases. Dean Foods must package its milk products before distributing them out to various stores. This is regarded as a variable cost because as the company produces more milk products, the cost of packaging also increases (Drury, 2014). But if the number of products produced decreases, the variable cost associated with packaging also reduces.
There are also operating costs which entail the expenses associated with the every-day business activities but cannot be traced back to one product. It is essential to note that the operating cost can be fixed or variable. Dean Foods have numerous stores across the country; as a result, they are pay rent and utilities. Operating costs are the day-to-day expenses but separately classified from indirect costs. They are the cost associated with the production.
References
Dean Foods Inc. (2019) Brands. Retrieved from http://www.dairyease.com/brands.aspx
DRURY, C. M. (2014). Management and cost accounting. Springer.
Garrison, R. H., Noreen, E. W., Brewer, P. C., & McGowan, A. (2014). Managerial accounting. Issues in Accounting Education, 25(4), 792-793.
Horngren, C. T., Foster, G., Datar, S. M., Rajan, M., Ittner, C., & Baldwin, A. A. (2015). Cost accounting: a managerial emphasis. Issues in Accounting Education, 25(4), 789-790.
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