Managerial accounting



mgr Agata Kocia

Zakład Strategii i Polityki Gospodarczej     Office hours: Mondays 6:30 pm - 7:30 pm in Room 301 (Attention: days/hours of office hours may change!) Additional availability at WNE: Wednesdays and Thursdays afternoon e-mail: [email protected]; [email protected] Web page: www.wne.uw.edu.pl/akocia 1

Role of managerial accounting

   Financial accounting: – Measures and maintains records of enterprise assets, economic operations as well as preparation of financial statements Managerial accounting: – Prepares use of necessary information needed in the management of the enterprise – Provides concepts and methods for decision problem-solving in an organisation Controlling: – An enterprise results-oriented process which is conducted by planning, control, reporting and management 2

Fundamental concepts

 Concepts of resource and cost –

resource

is an economic element used in an enterprise for a conduct of its activities –

cost

is described in money or its equivalents; use of resources connected with a conduct of enterprise activities in order to obtain benefits for an organisation in a current or in the future periods

Cost = use of a resource x unit cost of a resource

3

Scope of cost reporting



Cost reporting

is a process of identifying, gathering, analyzing, presenting and interpreting information about costs obtained for decision-making purposes

Cost reporting

Financial accounting Reporting for external use Managerial accounting Reporting for internal use 4

Cost object

  Concept of cost object –

Cost object

is any object of grouping or cost calculation e.g. a product, a client, a supplier, an employee, an organizational unit, a process.

Gathering information about cost objects: – Gathering data about simple resources – real costs and planned costs – – Assign costs to objects Show relation between cost objects 5

Relation between costs and objects (1)

–

Direct assignment of costs to objects

– if there is a direct cause and effect relation between use of resources and cost objects –

Indirect assignment of costs to objects

– if there is a necessity to use a carrier of costs –

Carrier of costs

– parameter which allows resource costs to be assigned to cost objects and costs of some objects to others 6

Relation between costs and objects (2)

– Classification of simple resources to cost objects simple used resources

indirect direct

carrier of resource costs – Classification of costs of some objects to others cost object cost object

indirect direct

carrier of resource costs cost object 7

Profit/ Loss Statement

 

Profit and Loss Statement

(P/L Statement or Income Statement) presents information about costs incurred during a financial year Versions of preparing P/L Statement: –

Calculative approach

(p. 2-7) (usually for productive units), costs presented according to criterion "reason for costs being incurred":  Cost of goods sold  Selling expenses  Administration expenses –

Comparative approach

(p. 2-8) costs presented according to type e.g. amortization, salaries, usage of materials and energy 8

Form of P/L Statement

 Revenues and expenses from primary operational activities – – – Production enterprises: produces goods Service enterprises: supplies services (non-material goods) Merchandising (trade) enterprises: trade goods    Other operational revenues and expenses Financial revenues and expenses Extraordinary gains or losses 9

Expenses from primary operational activities

 

Product costs

– – Consists of the costs involved in the purchase or manufacture of goods At the point of sale are released from inventory as expenses and matched against sales revenue

Period costs

– Costs matched against revenues on a time period basis Manufacturing costs Product costs

Not sold

Presented as inventory in the assets section of a Balance Sheet Non manufacturing costs Period costs Presented as a period costs in P/L Statement (external purposes) 10

Manufacturing costs

 

Direct manufacturing costs

– – Direct materials Direct labor – Manufacturing overhead

Indirect manufacturing costs

– Cannot be classified in only one way e.g. indirect materials, indirect labor 11

Period costs

 

Selling expenses

– Related to conduct and continuity of the sales process  e.g. salespeople's salaries, marketing, advertising, maintenance of warehouse,…

Administrative expenses

– Related to administration and coordination of management activities in an enterprise  e.g. secretarial salaries, executive and accountants' salaries, maintenance of administrative buildings, R&D expenses,… 12

Result of the main operational activities under calculative approach

A.

B.

C.

D.

E.

F.

Net revenues from sale of goods I. Net revenues from sale of goods II. Net revenues from sale of materials Cost of goods sold I. Manufacturing costs II. Cost of goods and materials sold Gross income /loss from sales (A-B) Selling expenses Administration expenses

Income /loss from sales (C-D-E)

Źródło: UoR, 2000 13

Type-based costs

  

Type-based costs

– Such a cost which according to accounting evidence cannot be divided into simpler elements but can be in only one way classified to a given type

Simple cost

– Cost which cannot be divided into simpler elements Type-based costs: – – – – – – – amortization usage of materials and energy foreign services taxes and charges labor/salaries social insurance and contributions other 14

Amortization

 

Amortization

– Shows continuous usage of tangible (fixed) assets as well intangible assets over their economic lives – When calculating an amortization cost of a given asset one should consider: its economic life, technical qualities, technological progress, legal limits, possible re-sale price Amortization methods: – – – Straight-line Declining Double-declining 15

Usage of materials and energy



Usage of materials and energy

– Is calculated based on supplier invoices (external documents) and render of inventory (internal documents) – Costs due to usage of materials depend on:  Accounting methods used to calculate purchase price of materials  Price at which inventory is rendered – Beginning price of materials is calculated according to purchase price + purchase costs – Methods used to calculate inventory value:  FIFO ( F irst I n F irst O ut)   LIFO ( L ast I n F irst Weighted-average O ut) 16

Other type-based positions

    

Foreign services

– e.g. transportation services, banking services, telecommunication, land lease, insurance, outsourcing,..

Taxes and charges

– e.g. real estate taxes, treasury taxes, transport taxes,..

Labor /Salaries

– full-time (contractual), part-time (freelance)

Social insurance and contributions

– e.g. ZUS paid by the employer, Work and Employee Benefit Guarantee Funds (pl: Fundusz Pracy i Fundusz Gwarantowanych Świadczeń Pracownicznych), safety wear, training costs, ..

Other

– Business travel expenses, asset insurance,..

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Result of the main operational activities under comparative approach

A.

B.

Net revenues from sales I. Net revenues from sale of goods II. Change in inventory (increase +, decrease -) III. Cost of manufacturing goods for an organizational unit IV. Net revenues from sale of materials Operational expenses I. Amortization II. Usage of materials and energy III. Foreign services IV. Taxes and charges: - including excise duties V. Labor/Salaries VI. Social insurance and contributions VII. Other VIII.Value of goods sold C.

Income /loss from sales (A-B) Źródło: UoR, 2000 18

Other operational revenues and expenses

 Other operational revenues and expenses related to operating activities of an enterprise, especially: – Social activities, – – Sale of fixed assets, value of intangible assets and rights Write-offs of receivables and payables excepts those not charged to costs, – Initiation and termination of reserves except for those related to financial operations, – Write-offs to assets in order for them to be represented at true and fair value on the balance sheet except for write-offs to manufactured goods, selling costs or financial costs, – – Indemnities, damages and fines, Transfer or receipt of assets free of charge (also as deed of gift) for purposes other then purchase or production of fixed assets, fixed assets in progress or intangible assets 19

Result of the other operational revenues and expenses

F.

G.

Income from Sales Other operational revenues I. Income from sale of non-financial fixed assets II. Donations III. Other operational revenues Other operational expenses H.

I. Loss from sale of non-financial fixed assets II. Write-offs/ups of non-financial assets III. Other operational expenses I.

Income /loss from operational activities (F+G-H) Źródło: UoR, 2000 20

Financial revenues and expenses

 Financial revenues and expenses relate to investment of an enterprise, particularly: – – – – Purchase and sale of investments,: Benefits from investments owned profits, Other interest received or payable, Revenues and expenses related to financial valuation of assets (except for long-term investments) – Currency differences related to transactions recorded in foreign currencies as well as valuation of assets and liabilities at balance sheet date (except for long-term investments) 21

Income related to financial revenues and expenses

I.

J.

Income/ Loss from operations (F+G-H) Financial income I. Dividends and share of profits II. Interests III. Income from sale of investments IV. Valuation of investments V. Other K.

Financial expenses I. Interest II. Loss on sale of investments III. Valuation of investments IV. Other L.

Income/Loss from economic activities (I+J-K) Źródło: UoR, 2000 22

Extraordinary Gains or Losses

 Extraordinary Gains or Losses originate as a result of unexpected, unforeseeable events, outside of operational activities of the unit and are not related to the general risk of business conduct – – Extraordinary Gain is an income above compensatory payments Extraordinary loss is a cost of taking care of the results of an unexpected events in the part not covered by insurance 23

Income related to extraordinary gains or losses

L.

M.

Income/ loss from economic activities Result of unexpected events (M.I. – M.II.) I. Extraordinary gains N.

II. Extraordinary losses Gross income (L Źródło: UoR, 2000 ±M) 24



Example

ABC Enterprise began its operation of 2Jan.2003. In January it produced 10000 units of one product while incurring the following costs

Aim of the cost Type of cost

Usage of materials Labor/Salaries Amortization Foreign services

Together

Manufacture 50 000 25 000 15 000 10 000

100 000

Sale 2 000 13 000 10 000 25 000

50 000

Administration 1 000 19 000 6 000 4 000

30 000

Together 53 000 57 000 31 000 39 000

180 000

 6 000 units were sold at a price of 20 zł. Prepare P/L Statement in the part related to sales according to both approaches. Rachunek zysków i strat 25