-We are going to start on Chapter 18.
Chapter 18, which is called Managerial Concepts, Managerial Accounting Concepts and Principles.
Okay, you can come off that for a second.
We started to kind of make a shift in this class in the last couple of lectures, okay?
Accounting 2 is almost like two separate classes.
The first half of it, which we are now done with, the first half of it is like a continuation
of Financial Accounting, okay?
The second half of it, where we're kind of starting now, but maybe started a couple lectures
ago technically, is kind of a precursor to Managerial Accounting, okay?
Now, how many of you have to take Managerial Accounting eventually, okay?
More than half of you.
So everything you learn from here to the rest of this semester you will be doubly blessed
with because you will be going over this in greater detail, in greater depth in Managerial
Accounting and I kind of talked about that as far as Chapter 16 and 17 as well, right?
You'll readdress those subjects of the cash flow statement and financial statement analysis
and you'll have a little bit more time to go in a little bit more depth, okay?
So we are gonna start talking today about managerial accounting.
Let me show you this first slide here, okay?
Financial Accounting, which is what you did in Accounting 1 and up till now in this class,
this is accounting that provides information to external users such as stockholders, creditors,
potential creditors, okay?
Those that are outside of the organization, okay?
That's financial accounting.
Now, what is managerial accounting?
What is this subject of managerial accounting that we're going to start?
It provides information for managers, for managers of an organization who are gonna
plan and control the operations of it, okay?
This is -- managerial accounting is for the managers, okay, makes sense.
Let me give you a little bit of an analogy here, okay?
Nobody here is married, are they?
No?
-I am.
-You are, Matt?
I didn't know that, okay.
How long you been married?
-Almost a year and a half.
-Okay.
Are you far enough in your marriage where you guys do finances and stuff together and
tax returns and all that?
-Yeah.
-Okay.
Well, Matt, let's -- let me use an analogy that might kind of clarify this financial
versus managerial accounting, okay?
Have you guys done a tax return together yet?
Okay.
When you did a tax return, think about that.
Why did you do that tax return?
-Because we legally had to pay to pay taxes.
-Because you have to, right?
And who did you do that tax return for?
-Federal and state.
-Federal and for state, for the government, right?
And are there lots of specific rules about how you do your taxes?
Yes, there are, right?
And when you did your taxes, you and your wife pretty much, you probably did them in
the early part of the year and you looked at the previous year as a whole, correct?
Okay?
But you kind of have to do it, right?
You're doing it for external users.
That's kind of like financial accounting, okay?
You and your bride doing your taxes is analogous to financial accounting.
There's a lot of rules, you're doing it for somebody outside of the company, you're usually
looking at past information, okay?
Let's talk about managerial accounting.
Now, I don't know if you and your wife do this, but sometime in your marriage you'll
probably start doing things like where you get together and kind of financially plan
out the next year or look at your finances together, do you do that at all?
Okay?
So let's say you and your wife sit down and plan out a budget, okay?
Plan out a budget for the next year or a portion of the year or whatever.
Are you required to do that by any outside agency?
No.
You can do it, you can not do it.
Are there lots of rules about how you do it if you choose to?
No.
You want to make a category for, you know, Royals tickets in your expense budget, make
a category for Royals tickets, right?
You can do what you want because it's just you and your wife managing the entity that
is your little family, right?
So it's very flexible, okay?
Now, you don't just look in the past though with that sort of a situation, do you?
You're doing a lot of talking about the future.
Like, well, what do we want to be in a year?
Well, what should we save for the future?
What should we-- let's start saving up for holiday gifts or whatever, right?
You're looking at the future.
You're looking at the past, but it's very flexible, correct?
You also may not look at the -- at your entire finances, but you may just decide to do a
budget, for example, for a vacation, maybe you're gonna take a vacation between semesters,
a ski trip or something.
And so you do a budget for that ski trip, okay?
But that whole situation is analogous to managerial accounting, does that makes sense?
Okay?
Let's take a look at this next chart and this chart is in your book and I think that'll
help clarify it, too.
This is financial accounting, this is managerial accounting, okay?
Now, as I said, financial accounting deals with external users.
Managerial accounting has to do with those internal to the company, okay?
The purpose for financial is to make investment, credit and other decisions, whereas managerial,
it's to plan and make decisions in regards to running your company.
Financial accounting is very structured.
Lots of rules.
Sometimes we say financial accounting is very black-and-white, okay?
Managerial accounting is relatively flexible or we might say it's more gray, okay?
It's more gray.
Just like when you do your budget, it's not a lot of rules.
Timeliness.
Financial accounting a lot of times is only available after the year is done and after
the audit is complete, whereas with managerial, there's no need to wait on any sort of official
audit or anything, right?
Okay?
Financial accounting mainly looks at the past history.
They may do a little-- they'll do some predictions, but it's mainly looking at historical information,
whereas with managerial accounting there's lots of projections and estimates that you
make, okay?
The focus of financial accounting is on the whole organization, whereas managerial might
just look at a segment, okay, similar to the way maybe you just did a budget for your vacation.
The nature of information in financial is usually just strictly monetary, whereas in
-- did I say that right?
For financial accounting it's strictly monetary.
For managerial accounting, though, you often bring a lot of non-monetary information in
there as well, such as, well, if you and your wife, Matt, were planning out a vacation,
you would say, Well, where do we think we would enjoy going to the most, right?
And, you know, What's the weather gonna be?
And would we rather go on one big vacation this next year or two smaller vacations, right?
But there's a lot more of that sort of a discussion in managerial.
In a business, you would bring into concepts as far as like, How will our customers react
to this change?
Or, you know, Are our vendors going to be happy if we--, you know, that sort of thing,
so there's a lot of non-monetary information that's discussed there as well.
Does that kind of clarify it?