Welcome everyone, to the fourth week of our accounting course,

the first week that we specifically devote to the studies of managerial accounting.

In our previous weeks, we dealt with financial accounting.

And in the final episode of the previous week, we said that what's missing for

us, the students evaluation, in the information, procedures and

approaches provided by financial accounting is whatever happens

within the black box within the project or the company.

And that is why starting on here, we focus on managerial accounting.

And here, this is the intro to managerial accounting.

This is the very first episode.

So first of all we said that

the data from financial accounting,

this is sometimes not sufficient.

And we said that the missing thing is what's within the box.

Now the question is, what is managerial accounting?

Well, there's a definition, managerial accounting

it's the process within the organization that provides

the people who make decisions basically, with information, that is used for.

So it's the process,

That provides information on or

for, if you will, planning and strategy,

Management itself, and control.

The key difference that you can immediately see is

that the scope of managing accounting is sort of future looking.

Although we manage and control right now, but

we normally do that in the hope of pursuing and reaching the goals and

objectives that we formulated on the stage of planning and strategy.

Now you can see right away, so that Magill Accounting seems to be

better linked to our goal of evaluation, because we also deal with the future.

And you can say well wait a minute, that's very much likely that managerial

accounting will also face uncertainty, and they need to forecast.

Indeed it will, or indeed it does.

But I would point out some other things, that all these pieces of information,

and the corresponding procedures, they are used for

the following objectives, let's say resource allocation.

No company has unlimited resources.

And sometimes you have to make your choice.

You have to say, well, I'll do this, but I will not do that, and

that is the scope of managerial accounting.

Then also here we can see

that it deals with the idea of costs.

The costs they are closely linked to that, but

about costs I will say a few words in just a few moments.

But also we can see that, that is used for

the evaluation of performance,

and people, and for many other things.

So here we can see, that in the very first

introductory phase of managerial accounting we immediately see that

people here are likely to play the more important role, than the numbers.

And that is not specifically that I will use that dichotomy to say well,

the first part is more about numbers, the second part is more about people.

Well, it, in reality, is like that, but we will try to see

how that is interacting, and how that is a consistent view of what's going on.

So let me proceed, and I would point out some key ideas

in managerial accounting because we know that we're sort of limited in our scope.

Again, managerial accounting is a huge area tons, of textbooks, lots of cases,

do quite a few people, and this is a very advanced, and important activity.

So what are key ideas in managerial accounting?

One that I mentioned before, I sort of jumped to that, this is the idea of costs.

Now often times managerial accounting is just called cost accounting,

because this is the key emphasis, the key focus of managerial accounting.

Now, the next thing is that we concentrate on people rather than numbers.

And we concentrate on processes,

so this is a very dynamic area.

And we will, there lots of insights on this path, and will see why

people sometimes are challenged with the need to properly treat these things.

And it is indeed somewhat more difficult compared to what we

do in our preparation of standard financial statements.

Now, and here we are already very close to answering the big question.

Why is that, that managerial

accounting important to evaluation?

Well we have an idea,

because we said it's forward looking, it deals with some forecasts.

And I would point out just things that are sort of special.

You know these costs,

they should be treated properly.

And I would say properly quoted,

because they influence, the components of evaluation.

The next thing here is that we deal with forecast, like I was saying before.

And the next thing is that we have to,

when I said that these costs should be dealt

with properly, a very special area here

is the irrelevance of some of these costs.

Remember when we talked in evaluation, in our corporate finance course,

we said that certain cost, for example, like sum cost had to be ignored,

while others like opportunity cost must be taken into account.

And that is developed in somewhat greater detail in

what we do here in managerial accounting.

And also I would say that this managerial accounting deals with decisions.

And decisions, they sometimes have

a very special contribution to the process of evaluation.

Remember when we talked in corporate finance about derivative instruments.

We said that some contribution to evaluation may

openly depend upon some decisions that we'll be able to make in the future.

And although often times, there is really a very

indirect link between managerial accounting, and

the evaluation of derivative instruments, but that still must be kept in mind.

So what is our focus here?

So we focus on, and first of all,

we always focus on the shareholders idea.

So here it is clearly seen.

So instead we talk about people, we said that it's important to see

who, how, and why affects certain costs, and

who can benefit from that, that will be very important.

Now, we focus on costs

as to how they affect evaluation.

And I was talking about

the idea of relevance, and

then also we focus on various

kinds of contribution,

To the inputs again,

and to what effects value.

So that's basically the story, because I could have proceeded,

but again, my challenge here is to focus on certain things

that go well beyond the scope of what we just talked before.

So we have to make some of valuable additions to what we've learned so far.

And at the same time, I have to really pick, sort most important things

from the huge ocean of information in the managerial accounting.

So that is why I sort of beg your pardon for

being forced to limit our scope, and to limit our focus.

But otherwise, we will really get bogged down in this ocean,

avalanche, whatever of information.

So starting from the next episode, we will try to keep this focus.

And in the next one we will discuss the major differences between financial

accounting, and managerial accounting to the extent we

focus on the studies of managerial accounting.

4.1. What is managerial accounting? Key ideas

Core Concepts of Accounting – Numbers and People

Meet the Instructors