1

Managerial accountingManagerial accounting Managerial accountingManagerial 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: akocia@wne.uw.edu.pl; agatkaak@yahoo.com Web page: www.wne.uw.edu.pl/akocia

2

Role of managerial accountingRole of managerial accountingRole of managerial accountingRole 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

3

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

Fundamental conceptsFundamental concepts Fundamental conceptsFundamental 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

4

Scope of cost reportingScope of cost reportingScope of cost reportingScope 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

5

Cost objectCost objectCost objectCost 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

6

Relation between costs and objectsRelation between costs and objects (1) (1)Relation between costs and objectsRelation between costs and objects (1) (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

7

Relation between costs and objects Relation between costs and objects (2)(2)Relation between costs and objects Relation between costs and objects (2)(2)

– Classification of simple resources to cost objects

– Classification of costs of some objects to others

simple used resources

cost objectcarrier of

resource costsindirect

direct

cost object cost objectcarrier of

resource costsindirect

direct

8

Profit/ Loss StatementProfit/ Loss StatementProfit/ Loss StatementProfit/ 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

9

Form of P/L StatementForm of P/L StatementForm of P/L StatementForm 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

10

Expenses from primary operational activitiesExpenses from primary operational activitiesExpenses from primary operational activitiesExpenses 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

Non-manufacturing

costs

Product costs

Period costs

Presented as inventory in the assets section of a

Balance Sheet

Presented as a period costs in P/L Statement

(external purposes)

Not sold

Sold

11

Manufacturing costsManufacturing 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

12

Period costsPeriod costsPeriod costsPeriod 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,…

13

Result of the main operational activities Result of the main operational activities under calculative approachunder calculative approachResult of the main operational activities Result of the main operational activities under calculative approachunder calculative approach

A. Net revenues from sale of goods

I. Net revenues from sale of goods

II. Net revenues from sale of materials

B. Cost of goods sold

I. Manufacturing costs

II. Cost of goods and materials sold

C. Gross income /loss from sales (A-B)

D. Selling expenses

E. Administration expenses

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

Źródło: UoR, 2000

14

Type-based costsType-based costsType-based costsType-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

15

AmortizationAmortizationAmortizationAmortization

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

16

Usage of materials and energyUsage of materials and energyUsage of materials and energyUsage 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 (First In First Out) LIFO (Last In First Out) Weighted-average

17

Other type-based positions Other type-based positions Other type-based positions 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,..

18

Result of the main operational activities Result of the main operational activities under comparative approachunder comparative approachResult of the main operational activities Result of the main operational activities under comparative approachunder comparative approachA. 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

B. 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

19

Other operational revenues and expenses Other operational revenues and expenses Other operational revenues and expenses 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

20

Result of the other operational revenues and Result of the other operational revenues and expensesexpensesResult of the other operational revenues and Result of the other operational revenues and expensesexpenses

F. Income from Sales

G. Other operational revenues

I. Income from sale of non-financial fixed assets

II. Donations

III. Other operational revenues

H. Other operational expenses

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

21

Financial revenues and expensesFinancial revenues and expensesFinancial revenues and expensesFinancial 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)

22

Income related to financial revenues and Income related to financial revenues and expenses expenses Income related to financial revenues and Income related to financial revenues and expenses expenses

I. Income/ Loss from operations (F+G-H)

J. 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

23

Extraordinary Gains or Losses Extraordinary Gains or Losses Extraordinary Gains or Losses 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

24

Income related to extraordinary gains or Income related to extraordinary gains or losses losses Income related to extraordinary gains or Income related to extraordinary gains or losses losses

L. Income/ loss from economic activities

M. Result of unexpected events (M.I. – M.II.)

I. Extraordinary gains

II. Extraordinary losses

N. Gross income (L±M)

Źródło: UoR, 2000

25

ExampleExampleExampleExample ABC Enterprise began its operation of 2Jan.2003. In January it produced 10000

units of one product while incurring the following costs

Manufacture Sale Administration Together

Usage of materials 50 000 2 000 1 000 53 000

Labor/Salaries 25 000 13 000 19 000 57 000

Amortization 15 000 10 000 6 000 31 000

Foreign services 10 000 25 000 4 000 39 000

Together 100 000 50 000 30 000 180 000

Aim of the cost

Type of cost

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