Managerial Accounting and the Business Environment

Chapter 1 Managerial Accounting and the Business Environment

Budget: A detailed plan for the future, usually expressed in formal quantitative terms.

Business process: A series of steps that are followed to carry out some task in a business.

Chief Financial Officer (CFO) The member of the top management team who is responsible for providing timely and relevant data to support planning the control activities and for preparing financial statements for external users.

Constraint: Anything that prevents an organization or individual from getting more of what it wants.

Control: The process of instituting procedures and then obtaining feedback to ensure that all parts of the organization are functioning effectively and moving toward overall company goals.

Controller: The member of the top management team who is responsible for providing relevant and timely data to managers and for preparing financial statement for external users. The controller reports to the CFO.

Controlling: Ensuring that the plan is actually carried out and is appropriately modified as circumstances change.

Corporate governance: The system by which a company is directed and controlled. If properly implemented it should provide incentives for top management to pursuer objectives that are in the interests of the company and it should effectively monitor performance.

Decentralization: The delegation of decision-making authority throughout an organization by providing managers with the authority to make decisions relating to their area of responsibility.

Directing and motivating: Mobilizing people to carry out plans and run routine operations.

Enterprise system: A software system that integrates data from across an organization into a single centralized database that enables all employees to access a common set of data.

Enterprise risk management: A process used by a company to help identify the risks that it faces and to develop responses to those risks that enable the company to be reasonably assured of meeting its goals.

Feedback: Accounting and other reports that help managers monitor performance and focus on problems and/or opportunities that might otherwise go unnoticed.

Financial accounting: The phase of accounting concerned with providing information to stockholders, creditors, and others outside the organization.

Finished good: Units of product that have been completed but have not yet been sold to customers.

Just-in-time (JIT): A production and inventory control system in which materials are purchased and units are produced only as needed to meet actual customer demand.

Lean thinking model: A five-step management approach that organizes resources around the flow of business processes and that pulls units through these processes in response to customer orders.

Line: A position in an organization that is directly related to the achievement of the organization’s for use inside the organization.

Managerial accounting: The phase of accounting concerned with providing information to managers for use inside the organization.

Non-value-added activities: Activities that consume resources but do not add value for which customers are willing to pay.

Organization chart: A diagram of a company’s organizational structure that depicts formal lines of reporting, communication, and responsibility between managers.

Performance report: A detailed report comparing budgeted data to actual data.

Planning: Selecting a course of action and specifying how the action will be implemented.

Planning and control cycle: The flow of management activities through planning, directing and motivating, and controlling, and then back to planning again.

Raw materials: Materials that are used to make a product.

Sarbanes-Oxley Act of 2002: Legislation enacted to protect the interests of stockholders who invest in publicly traded companies by improving the reliability and accuracy of the disclosures provided to them.

Segment: Any part of an organization that can be evaluated independently of other parts and about which the manager seeks financial data. Examples include a product line, a sales territory, a division, or a department.

Six Sigma: A method that relies on customer feedback and objective data gathering and analysis techniques to drive process improvement.

Staff: A position in an organization that is only indirectly related to the achievement of the organization’s basic objectives. Such positions provide service or assistance to line positions or to other staff positions.

Strategy: A “game plan” that enables a company to attract customers by distinguishing itself from competitors.

Supply chain management: A management approach that coordinates business processes across companies to better serve end customers.

Theory of Constraints (TOC): A management approach that emphasizes the importance of managing constraints.

Value chain: The major business functions that add value to a company’s products and services such as research and development, product design, manufacturing, marketing, distribution, and customer service.

Work in process: Units of product that are only partially complete and will require further work before they are ready fro sale to a customer.