Managerial accounting

1. 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: akocia@wne.uw.edu.pl; agatkaak@yahoo.com • Web page: www.wne.uw.edu.pl/akocia

2. 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

3. Fundamental concepts • Concepts of resource and cost • resourceis an economic element used in an enterprise for a conduct of its activities • costis 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

4. Cost reporting Financial accounting Reporting for external use Managerial accounting Reporting for internal use Scope of cost reporting • Cost reportingis a process of identifying, gathering, analyzing, presenting and interpreting information about costs obtained for decision-making purposes

5. Cost object • Concept of cost object • Cost objectis 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 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

7. direct direct simple used resources cost object cost object cost object indirect indirect carrier of resource costs carrier of resource costs Relation between costs and objects (2) • Classification of simple resources to cost objects • Classification of costs of some objects to others

8. 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

9. 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

10. 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 Not sold Presented as inventory in the assets section of a Balance Sheet Manufacturing costs Product costs Sold Presented as a period costs in P/L Statement (external purposes) Non-manufacturing costs Period costs

11. 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

12. 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,…

13. Result of the main operational activities under calculative approach Źródło: UoR, 2000

14. 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

15. 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

16. 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 (First In First Out) • LIFO (Last In First Out) • Weighted-average

17. 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 under comparative approach Źródło: UoR, 2000

19. 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 expenses Źródło: UoR, 2000

21. 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)

22. Income related to financial revenues and expenses Źródło: UoR, 2000

23. 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 losses Źródło: UoR, 2000

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