Cost Classification

MANAGERIAL ACCOUNTING SOMNATH DAS

BASICS OF MANAGERIAL ACCOUNTING

Purpose of the course - familiarize you with:

1. Managerial accounting concepts. 2. Managerial accounting practices. 3. Use of managerial accounting information for decision making. 4. Pitfalls.

Accounting is a branch of study concerned with the generation ( identification & measurement ) and provision (Communication) of information.

Managerial accounting is in particular accounting for the internal management of organizations.

A. Financial versus Managerial Accounting

Financial Accounting Management Accounting

Approach ! unifying concept: assets=equities ! no underlying unity-- many approaches

Rules ! G.A.A.P. ! no general principles

! mandatory ! mostly optional

Measurement ! almost exclusively $ ! many non-financial elements

! emphasis on precision, objectivity ! subjective estimates

Past/Future ! based on past ! many future estimates and forecasts

Aggregation ! overall summary of business ! very segmented

! general purpose information ! specific purpose reports

Frequency ! less/mandatory frequency ! more frequent and optional

Similarity ! basic data source same

End result ! ends with financial statements ! integral part of other business aspects

B. Cost Accounting Terminology

1. Nature of Cost

Cost - A sacrifice of resources: Cost is a measurement in monetary terms of the amount of resources used for some purpose.
Expense - The cost charged against revenue in a particular accounting period.

2. Purposes of Gathering Cost Information

Routine decision making: Managerial control Accounting Nonroutine decision making Cost