| After you have mastered the material in this chapter, you will be able to: | | 1. | Distinguish between managerial and financial accounting. | | 2. | Identify the cost components of a product made by a manufacturing company: the cost of materials, labor, and overhead. | | 3. | Explain the effects on financial statements of product costs versus general, selling, and administrative costs. | | 4. | Distinguish product costs from upstream and downstream costs. | | 5. | Explain how product costing differs in service, merchandising, and manufacturing companies. | | 6. | Show how just-in-time inventory can increase profitability. | | 7. | Explain how cost classification can be used to manipulate financial statements. | | 8. | Identify the standards of ethical conduct and the features that motivate misconduct. | | 9. | Explain how the Sarbanes-Oxley Act affects management accountants. | | 10. | Identify emerging trends in accounting (Appendix B). |
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The Curious Accountant | In the first course of accounting, you learned how retailers, such as Best Buy Co., account for the cost of equipment that lasts more than one year. Recall that the equipment was recorded as an asset when purchased, and then it was depreciated over its expected useful life. The depreciation charge reduced the company’s assets and increased its expenses. This approach was justified under the matching principle, which seeks to recognize costs as expenses in the same period that the cost (resource) is used to generate revenue. In this course, the focus will often be on manufacturing entities, so consider the following scenario. Apple Computer manufactures iPod MP3 players that it sells to Best Buy. In order to produce the iPods, Apple had to purchase a robotic machine that it expects can be used to produce 1 million iPods. Do you think Apple should account for depreciation on its manufacturing equipment the same way Best Buy accounts for depreciation on its registers at the checkout counters? If not, how should Apple account for its depreciation? Remember the matching principle when thinking of your answer. (Answer on page 13.) |
CHAPTER OPENINGAndy Grove, Senior Advisor to Executive Management of Intel Corporation, is credited with the motto “Only the paranoid survive.” Mr. Grove describes a wide variety of concerns that make him paranoid. Specifically, he declares: I worry about products getting screwed up, and I worry about products getting introduced prematurely. I worry about factories not performing well, and I worry about having too many factories. I worry about hiring the right people, and I worry about morale slacking off. And, of course, I worry about competitors. I worry about other people figuring out how to do what we do better or cheaper, and displacing us with our customers.
Do Intel’s historical-based financial statements contain the information Mr. Grove needs? No. Financial accountingBranch of accounting focused on the business information needs of external users (creditors, investors, governmental agencies, financial analysts, etc.); its objective is to classify and record business events and transactions to produce external financial reports (income statement, balance sheet, statement of cash flows, and statement of changes in equity). is not designed to satisfy all the information needs of business managers. Its scope is limited to the needs of external users such as investors and creditors. The field of accounting designed to meet the needs of internal users is called managerial accountingBranch of accounting focused on the information needs of managers and others working within the business. Its objective is to gather and report information that adds value to the business. Managerial accounting information is not regulated or reported to the public.. |
