Exhibit 1-1. Managerial Accounting, Financial Accounting and Cost Accounting
Accounting System
(one part of the organization’s management information system)
Accumulates data for use in both financial and managerial accounting
Cost Accounting System
(one part of the organization’s overall accounting system)
Accumulates cost information
MANAGERIAL ACCOUNTING
Preparation of information for decision making, planning, directing, and controlling an organization’s operations
FINANCIAL ACCOUNTING
Preparation of published financial statements and other financial reports
INTERNAL USERS OF |
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EXTERNAL USERS OF |
INFORMATION |
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INFORMATION |
Managers at all levels |
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Stockholders, financial |
in the organization |
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analysts, lenders, unions, |
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consumer groups, and |
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governmental agencies |
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Line and Staff Positions
The other positions shown in the organization chart are of two types: line positions and staff positions. Managers in line positions are directly involved in the provision of medical care or in the operation of the facilities. Olympia
Regional Hospital’s line positions include the various chiefs of the hospital’s
professional medical personnel, the director of admission and patient records, and the director of purchasing, housekeeping, and facilities. All of these people are involved directly in serving patients or in operating the physical facilities.
Managers in staff positions supervise activities that support the hospital’s mission, but they are indirectly involved in the hospital’s operations. The counsel is the hospital’s lawyer, and the personnel director hires the hospital’s employees and maintains all employment records. The controller and treasurer are Olympia Regional Hospital’s chief accountants. The existence of two stafflevel accounting positions reflects a division of responsibilities, as portrayed in Exhibit 1-4.
Controller In most organizations, the controller (sometimes called the comptroller) is the chief managerial and financial accountant. The controller usually is responsible for supervising the personnel in the accounting department and for preparing the information and reports used in both managerial and financial accounting. As the organization’s chief managerial accountant, the controller often interprets accounting information for line managers and serves as a consultant when decisions and plans are made. Most controllers are involved in planning and decision making at all levels and across all functional areas of the enterprise. This broad role has enabled many managerial accountants to rise to the top of their organizations. In recent years, former accountants have served as top executives in such companies as General Motors, Singer, General Electric, and Fruehauf.
Treasurer The treasurer typically is responsible for raising capital and safeguarding the organization’s assets. Olympia Regional Hospital’s treasurer oversees the relationships between the hospital and its donors, lenders, investors, and the governmental agencies that supply partial funding. In addition, the treasurer is responsible for the hospital’s assets, the management of its investments, its credit policy, and its insurance coverage.
Internal Auditor Olympia Regional Hospital does not have an internal auditor, but most large corporations and many governmental agencies do. An organization’s internal auditor is responsible for reviewing the accounting procedures, records, and reports in both the controller’s and the treasurer’s areas of responsibility. The auditor then expresses independent opinion to top management regarding the effectiveness of the organization’s accounting system. In some organizations, the internal auditor also makes a broad performance evaluation of middle and lower management.
Exhibit 1-2. Differences between Managerial and Financial Accounting
Managerial Accounting |
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Financial Accounting |
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Users of Information |
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Managers, within the organization. |
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Interested |
parties, |
outside |
the |
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organization. |
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Regulation |
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Not required and unregulated, since it |
Required and must conform to |
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is intended only for management. |
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generally |
accepted |
accounting |
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principles. Regulated by the Financial |
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Accounting Standards Board, and, to a |
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lesser degree, the Securities and |
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Exchange Commission. |
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Source of Data |
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The organization’s basic accounting |
Almost exclusively drawn from the |
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system, plus various other sources, |
organization’s |
basic |
accounting |
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such as rates of defective products |
system, which |
accumulates financial |
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manufactured, physical |
quantities |
of |
information. |
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material and labor used in production, |
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occupancy rates in hotels and |
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hospitals, and average take-off delays |
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in airlines. |
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Nature of Reports and Procedures |
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Reports often focus on subunits within |
Reports focus on the enterprise in its |
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the organization, such as departments, |
entirely. Based almost exclusively on |
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divisions, geographical |
regions, |
or |
historical transaction data |
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product lines. Based on a combination |
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of historical data, estimates, and |
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projections of future events. |
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MAJOR THEMES IN MANAGERIAL ACCOUNTING
Several major themes influence virtually all aspects of managerial accounting. We will briefly introduce these themes now, and they will be apparent throughout the text.
Information and Incentives
The need for information is the driving force behind managerial accounting. However, managerial accounting information often serves two functions: a decision-facilitating function and a decision-influencing function. Information usually is supplied to a decision maker to assist that manager in choosing an