Cost and management accounting

Van Rensburg M

• Publisher: Van Schaik Publishers
• Year: 2017
• Print ISBN: 9780627031243
• eBook ISBN: 9780627033148
• Topic: Education
• Subtopic: Higher Education

A comprehensive introduction to cost and management accounting from a South African perspective. Includes numerous examples to illustrate how management accountants apply their expertise to the problems they are required to solve in the business environment as well as an extensive glossary. Aimed at undergraduate students.

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Introduction to cost and management accounting

CHAPTER OUTLINE

1. 1.1 Introduction
2. 1.2 Relationship of Financial and Management Accounting to Cost Accounting
3. 1.3 Recent developments in Management Accounting
4. 1.4 Ethics
5. 1.4.1 Chartered Institute of Management Accountants (CIMA) code of ethics for chartered management accountants
6. 1.5 Points to note
7. 1.6 Summary
8. Questions

Specific outcome

After studying this chapter, the learner should be able to achieve the following specific outcome:

Define the nature and purposes of Cost Accounting, Management Accounting and Financial Accounting.

Assessment criteria

Learners will demonstrate that they have achieved the specific outcome when they can do the following:

• State the differences between Cost Accounting, Management Accounting and Financial Accounting.
• Explain the meaning and purpose of Cost Accounting.
• Describe recent developments in Management Accounting
• Explain and apply ethical conduct for professional accountants.2

1.1 Introduction

Most students will be busy with or have completed an introductory financial accounting course prior to reading this text. Financial Accounting entails the recording of transactions to reflect the financial outcome or position as a result of a business’s activities. The annual financial statements, such as the Statement of Comprehensive Income, the Statement of Financial Position, etc., communicate the financial results of a business’s activities to various internal and, mainly, external stakeholders at a certain date. Stakeholders are individuals or groups that have an interest in the business. Examples of internal stakeholders are employees and management. External stakeholders include creditors, investors, society and the environment in which the business operates, and government with respect to taxes, economic statistics, etc.

The financial transactions of a business are recorded by financial clerks/accountants according to a set standard so that different companies’ results can be compared across the world. Most countries use International Financial Reporting Standards (IFRS), with the exception of a few by the end of 2015. The financial statements are thus prepared according to IFRS, and depending on specific regulations, companies must publish them at least annually.

The field of accounting entails more than just Financial Accounting. Other accounting-related designations include Cost and Management Accounting, Internal Auditing, Auditing, Tax and Financial Management. All these designations fulfil a different role in a business. This book describes the field of Cost and Management Accounting.

Historically, Cost and Management Accounting attempted to satisfy internal information needs for management functions and to provide product or service costing information (valuation of inventory) for preparing the financial statements. Since the advent of Integrated Reporting <IR>, the role of Management Accounting has changed in such a way that management accounting information is also necessary for external company reporting, for example Sustainability Reporting and <IR>. Management functions include decision making, planning, controlling and organising. To execute these functions, management needs quantitative and qualitative information. Quantitative information includes both financial (money) and non-financial (e.g. labour hours used; number of customer complaints) aspects. The difference between Cost Accounting and Management Accounting is that Cost Accounting is mainly concerned with determining product (or service) cost for the purpose of giving a value to inventory. There are several costing methods that can be used: job costing, process costing, standard costing, etc. Management Accounting assists in planning, controlling, performance measurement and decision making by using quantitative and qualitative information.

The primary differences and similarities between Financial Accounting and Management Accounting are shown in Figure 1.1. Recent developments in the field of Management Accounting will be discussed in paragraph 1.3.

Figure 1.1 Management Accounting compared with Financial Accounting

Financial accounting information is mainly used for the purpose of financial reporting to external stakeholders, although internal stakeholders have an interest in the financial statements. For example, management is concerned with profit made during a certain period. Management accounting information is necessary for both internal and external reporting, using both quantitative (financial and non-financial) and qualitative 3information. Internal as well as external stakeholders have an interest in management accounting information. Externally, management accounting information is used for reporting of financial and non-financial information in the annual financial statements, sustainability report, <IR>, etc. Management accounting information is very important for internal users, specifically in providing relevant information for planning, control, decision making and corporate governance aspects (King 3 Report published in 2009 and King 4 Report to be published during 2016 or 2017) where it is required either by law or by listing requirements.

Table 1.1 Users of management accounting versus financial accounting information

Management Accounting	Financial Account...

Table of contents

• Title Page
• Imprint Page
• Preface
• Contents
• Abbreviations and acronyms
• Chapter 1: Introduction to cost and management accounting
• Chapter 2: Cost concepts, classification and behaviour
• Chapter 3: Material and inventory control
• Chapter 4: Labour costs
• Chapter 5: Classification and analysis of overheads
• Chapter 6: Cost flows and manufacturing companies
• Chapter 7: Cost-volume-profit (CVP) analysis
• Chapter 8: Integrated accounting system and cost ledger accounting system
• Chapter 9: Basic job costing systems
• Chapter 10: Contract costing
• Chapter 11: Budgeting
• Chapter 12: Process costing
• Chapter 13: Joint and by-products
• Chapter 14: Direct and absorption costing
• Chapter 15: Pricing decisions
• Chapter 16: Standard costing
• Glossary
• Index