Cainas1e_LecturePPT_Chapter1.pptx accounting

Editor's Notes

• #1: If this PowerPoint presentation contains mathematical equations, you may need to check that your computer has the following installed: 1) MathType Plugin 2) Math Player (free versions available) 3) NVDA Reader (free versions available)
• #3: External users of financial information include lenders, competitors, government regulators, and shareholders. The reports compiled for external users of U.S. public companies must adhere to Generally Accepted Accounting Principles (GAAP). Managers are internal users of financial and nonfinancial information. They need detailed, relevant information that will help them determine the future actions of a company.
• #6: A strategic plan is an organization’s plan and goals for the future. At the planning stage, management needs broad information from both within and outside the organization. Much the needed information is not presented in the financial statements, such as information about obtaining resources such as materials, employees, capacity, financing, suppliers, and other infrastructure needs.
• #7: Several mid-level managers may have responsibility for the implementation of this plan as well as the authority to take the steps necessary to achieve those aspects of the common goal. 
• #8: Decision-making is a function of all levels of management that requires managers to decide on a course of action for the organization. Technological advances make it easy to capture more data than ever before, and companies can process the data quickly and easily. The challenge is capturing the “right” data inputs. Data outputs include items such as reports, graphs, summaries, and analyses. The outputs must be concise, easily understood by management, and aid in the decision-making process.
• #10: Examples of operational information needs include details such as whether employees show up for work, if equipment functions properly, and if customers are satisfied. Operations management rely on reports that include specific costs information for materials, labor, other production or direct service costs, and selling and administrative costs. Upper-level management need to answer questions long-term questions about strategies related to items such as products offered, competitors, and the target market. They need summarized reports about issues such as costs, profitability, innovations, market opportunities, and customer information.
• #12: Management will often need to study both financial and nonfinancial information to evaluate the company’s performance and make decisions that will affect its future performance. Although qualitative information can be more difficult to summarize, advances over the past few years with data analytics techniques have made many types of information much more accessible and also easier to analyze. Investors and management alike can use data analytics techniques to gather, measure, and utilize information and implement the insights gained to make better operational and strategic decisions.
• #14: Raw data that is unprocessed is not very useful. With the right tools data can be gathered, combined, and analyzed to provide useful insights for decision makers.
• #15: For example, if The Lawn Care Company changes its pricing, descriptive analytics can analyze its sales revenues by customer, job, or service line to determine which customers, jobs, or service lines are most profitable. 
• #16: For example, suppose The Lawn Care Company has an unexpected increase in lawn care cleanup during the month of October. To understand why this occurred, management could analyze many different types of data, such as the average revenue per job, weather patterns, and new customer referral data.
• #17: For example, The Lawn Care Company may use predictive analytics to determine how much additional lawn cleanup revenue might be generated after a hurricane, combining current customer data (data about their lawns, how many trees on each property, etc.) with other types of information (expected weather forecasts or hurricane activity this season).
• #18: In marketing, for example, The Lawn Care Company can analyze a customer’s past buying history and quickly develop a customized lawn care package or quote as the customer searches online for rates.
• #20: This input–process–output (IPO) framework supports a data analytics approach to a management accounting system, emphasizing the need to ask the right questions, gather and analyze the relevant data, and provide useful qualitative and quantitative information to make targeted operational and strategic decisions. 
• #21: The IPO framework for a management accounting information system is illustrated in Exhibit 1-1. The details of the chart are as follows: • The inputs are operational and financial data, in the form of structured data and unstructured data. • The process step is to process and convert. • The outputs are management accounting information, in the form of financial statements, visualizations, and dashboards.
• #22: Returning to the lawn mowing service example, suppose you have set up your company and decided that for the first year of operations, you will focus on providing a grass-cutting service. To compete successfully with the large, commercial lawn service companies, you want to make sure you give personal attention to each of your customers and provide a quality service at the lowest possible cost. You also decide to minimize your risk of failure by keeping your start-up costs low. That is, you will buy moderately priced equipment and a used truck rather than invest in newer, more expensive equipment. 
• #23: A string of numbers such as 8139746519 is not especially useful. However, if these numbers are inputs into a system and are processed as a phone number (813-974-6519), formatting the string of numbers in this way can provide useful information. Consider a pricing decision. External factors could include economic conditions, competitors’ prices, ability to hire employees, and prices of materials. Internal factors could include costs of generating revenues, customer locations, and features of work to be performed.
• #24: When developing a managerial accounting system, it is extremely important to make sure the inputs collected will be beneficial to the company and, ultimately, to its decision makers. A management accountant needs to critically evaluate the inputs and ensure that the following criteria are being met: The “right” questions are being asked. Relevant data is being captured. The data is being recorded correctly.
• #26: Reports should be concise, easily understandable, and timely. Data visualization software can be used to help management better understand and interpret the information presented. For example, a story in Tableau is a sequence of visualizations that together convey the insights gained by analyzing the information.
• #29: Once you have collected the data, you can use a spreadsheet to process it—that is, to create a budget to estimate your revenues, costs, and expected profits. Exhibit 1-2 explains how the inputs are processed to create a budget for the company. The data is as follows. • Revenues are the number of customers times 30 dollars per cut times 52 weeks, which equals 23,400 dollars, • Expenses are the following: o Salaries expense is 500 dollars per month times 12 months, which equals 6,000 dollars. o Payroll taxes is 6,000 dollars times 20 percent annual salary expense, which equals 1,200 dollars. o Gas expenses is number of customers times 2 dollars per gallon times 52 weeks, which equals 1,560 dollars. o Depreciation expenses is 200 dollars per month times 12 months, which equals 2,400 dollars. o Travel is 2 dollars per gas gallon times 2 gallons per week times number of customers times 52 weeks, which equals 3,120 dollars. o Repairs and maintenance including supplies is 1 dollar times number of customers times 12 months, which equals 180 dollars. o Other office expenses are taxes, insurance, and licenses estimated at 4,600 dollars annually. • Total expenses are 19,060 dollars. • Net income is 4,340 dollars.
• #30: Changing the number of customers each week caused revenues to increase in direct proportion to the change. That is, the increase resulted in five more customers being served each week at $30 per customer, for 52 weeks, which in turn increased revenues by $7,800. Note that net income did not increase by $7,800, because certain expenses increased with the addition of new customers. As you can see, the gas expenses, travel expenses, and repairs and maintenance costs all increased with the change in number of customers because those expenses are a function of how many customers are served each week. If you are cutting more lawns, you will have higher gas and travel charges and will need additional maintenance on your equipment each month. Other expenses such as salaries remain the same, regardless of how many customers are served. The data for 15 customers is as follows. • Revenues are the number of customers times 30 dollars per cut times 52 weeks, which equals 23,400 dollars, • Expenses are the following: o Salaries expense is 500 dollars per month times 12 months, which equals 6,000 dollars. o Payroll taxes is 6,000 dollars times 20 percent annual salary expense, which equals 1,200 dollars. o Gas expenses is number of customers times 2 dollars per gallon times 52 weeks, which equals 1,560 dollars. o Depreciation expenses is 200 dollars per month times 12 months, which equals 2,400 dollars. o Travel is 2 dollars per gas gallon times 2 gallons per week times number of customers times 52 weeks, which equals 3,120 dollars. o Repairs and maintenance including supplies is 1 dollar times number of customers times 12 months, which equals 180 dollars. o Other office expenses are taxes, insurance, and licenses estimated at 4,600 dollars annually. • Total expenses are 19,060 dollars. • Net income is 4,340 dollars. An additional column for 20 customers has the following data. • Revenues equals 31,200 dollars. • Expenses are the following: o Salaries expense is 6,000 dollars. o Payroll taxes is 1,200 dollars. o Gas expenses is 2,080 dollars. o Depreciation expenses is 2,400 dollars. o Travel is 4,160 dollars. o Repairs and maintenance is 240 dollars. o Other office expenses is 4,600 dollars. • Total expenses is 20,680 dollars. • Net income is 10,520 dollars.
• #31: Often using an illustration can convey the information more clearly and concisely, emphasizing key points that sometimes are buried if the reports contain strictly numerical values. Exhibit 1-3, which illustrates the forecast of expenses for The Lawn Care Company. This visualization quickly shows you that the salaries expense and other office expenses are significant costs in relation to the others listed. The chart shows the following data. • Salaries expense is 6,000 dollars. • Payroll taxes is 1,200 dollars. • Gas expenses, D M is 1,560 dollars. • Depreciation expenses is 2,400 dollars. • Travel is 3,120 dollars. • Repairs and maintenance including supplies is 180 dollars. • Other office expenses like licensing and fees is 4,600 dollars.
• #33: Exhibit 1-4 illustrates a performance report that analyzes budgeted amounts versus actual results for the first quarter. By reviewing each item on the income statement, you can see that revenues were lower than expected, and certain expenses were either higher or lower than originally planned. Management uses reports such as these to help identify problems and make changes that will improve results.
• #35: Using the lawn mowing company example, if the goal is to cut 30 lawns per month but you cut only 18, you were not effective in reaching your target. If you spent less than anticipated for the 18 lawns that you did cut, you were efficient. To promote both effectiveness and efficiency, companies need to be sure that managers report the most accurate numbers possible, both financial and nonfinancial.
• #36: Exhibit 1-5 illustrates examples of unethical behavior. These potential situations could escalate to fraud. Fraud is defined as any and all means that a person uses to gain an unfair advantage over another. In most cases, a fraudulent act must contain a false statement about a material (significant) fact combined with an intent to deceive. In addition, someone must have relied upon that information and suffered a loss as a result of that reliance on the false statement.
• #37: Although each organization faces different ethical challenges, it is often the accountants who must ensure that the financial information reported is accurate and fairly represents the financial condition of the company. If a conflict arises with management regarding the financial reporting, it is beneficial for accountants and financial professionals to have a clear approach to resolving such dilemmas.
• #43: Exhibit 1-7 summarizes the IPO process for determining standards and performing the analysis. There are three boxes: • Input: Relevant and reliable data is gathered across the organization. • Process: Data is processed by the company's systems and converted into usable information. • Output: Information is communicated efficiently and effectively to management to analyze the company's results and aid in operational and strategic decisions.
• #44: Assume that a web design company was started named Horn Designs. Exhibit 1-8 shows both the input data and the process. The input is the annual budget as well as the actual results for the year. There are two types of products: the basic static website and a dynamic one with functionality features. The process is the difference between actual costs versus budget.
• #45: Exhibit 1-9 is an example of a descriptive analytic. The pie chart clearly illustrates that the percentages of “advertising” and of “salaries, payroll taxes” are considerably smaller when compared to “website costs“ and “maintenance.” Should the percentages be distributed more equally, or is this not a valid concern? The data in the pie chart is as follows. • Salaries, payroll taxes: 4.9 percent • Website costs: 20.6 percent • Content management: 15.1 percent • Multimedia capability: 22.2 percent • Maintenance: 36.1 percent • Advertising: 1.1 percent
• #46: Output can also be presented in bar graphs, which can compare budgeted costs versus actual costs. This visualization method makes discrepancies more apparent and allows managers to focus on specific cost categories. In Exhibit 1-10, the bar graph shows a larger gap in budgeted versus actual cost in website and multimedia costs compared to other categories. Further analysis of the differences between budgeted versus actual would be an example of the diagnostic data analytics process. The data in the bar graph is approximately as follows: • Salaries and payroll taxes: Both budgeted and actual costs are close to 2,500 dollars, but the actual is slightly higher. • Website costs: Both budgeted and actual costs are just under 10,000 dollars, but the actual is a bit higher. • Content management: Both budgeted and actual costs are close to 7,500 dollars. • Multimedia capability: Both budgeted and actual costs are about 10,000 dollars, but the budgeted is slightly higher. • Maintenance: Both budgeted and actual costs are close to 17,500 dollars, but the actual is slightly higher. • Advertising: Both budgeted and actual costs are close to 500 dollars.
• #47: Bar graphs can also help when reviewing product lines, as seen in Exhibit 1-11. This presentation magnifies the differences in revenue between the two products: the basic static website and the dynamic website. This will support more accurate decision-making when the two are compared. Managers can gain further insights into the differences by reviewing nonfinancial data. For example, managers can examine customer reviews on social media, competitor data, new technology, employee suggestions, and website downtime reports. The data in the bar graph is approximately as follows: • Revenues: o Basic budget: 36,000 dollars o Dynamic budget: 50,000 dollars • Total costs: o Basic budget: 18,000 dollars o Dynamic budget: 27,000 dollars • Operating income: o Basic budget: 17,000 dollars o Dynamic budget: 23,000 dollars
• #50: The financial statements typically also include many supplementary notes, discussion of the results by management, and an independent opinion by an auditor verifying whether the financial statements are in accordance with GAAP because users are expecting that those rules were followed in recording the transactions. The financial statements will be useful to outsiders only if the statements fairly reflect the earnings, financial position, and cash flow activities of the entity. 
• #51: The sequencing of the preparation of the financial statements is illustrated on this slide. The figure shows the sequence in which financial statements are prepared as follows. • The income statement should be prepared first because the net income is part of the retained earnings account. • The statement of retained earnings should be prepared next. • Then, prepare the balance sheet. • The statement of cash flows, which explains changes in cash during the period, can be prepared independently.
• #54: This appendix is intended as a review of the objectives of financial accounting and relevant terminology.
• #55: This figure illustrate the process of financial accounting. The text in the first section is as follows. Business events of entity (transactions) occur. An arrow pointing to the right says Signal received to. The text in the second section is as follows: Record business event (transactions) An arrow pointing to the right says Transactions summarized into The text in the third section is as follows: Financial statements: Income statement, balance sheet, cash flows, changes in equity An arrow pointing to the right says Statements given to The text in the fourth section is as follows: Users of accounting information An arrow pointing to the right says In order to The text in the fifth section is as follows: Make decisions based on accounting information.
• #58: External users can use the information from the financial statements to assess: if the company is profitable. if the company has enough money to meet its obligations and stay solvent. how the company’s relative performance compares to that of other companies and to other periods. External users are current stockholders, potential investors, creditors, employees, competitors, and government agencies.