Notes - The ExP Group

M CO RO UP . PG EX W .T HE W W AT ET FU LL S

Notes

-F

RE

E

FIA – MA1 GE

S

Management Information

DE

MO

PA

For exams in 2015

theexpgroup.com

ExPress Notes

Contents 3

The nature and purpose of cost and management accounting

2.

Source documents and coding

3.

Cost classification and measurement

4.

Recording costs

5.

Providing information

6.

The spreadsheet system

7

EX

1.

PG

About ExPress Notes

W .T HE

14 17

MO

PA

GE

S

-F

RE

E

FU LL S

ET

AT

W

W

24

DE Page | 2

RO UP .

CO

M

FIA MA1 Management Information

© 2015 This material is the copyright of the ExP Group. Individuals may reproduce this material if it is for their own private use. It is illegal for any individuals to reproduce this for commercial use or for companies to reproduce this material partially and/or in full by any means, be it printed, photocopied, on electronic devices or any other means of reproduction. All examples presented in these course materials are for information and educational purposes only and should not be applied to a specific real life situation without prior advice. Given the nature of information presented in these materials, and given that legislation may change at any time, The ExP Group will not be held liable for any information presented in these materials as to its application to any specific cases.

34 42

ExPress Notes FIA MA1 Management Information

RO UP .

CO

M

START About ExPress Notes

PG

We are very pleased that you have downloaded a copy of our ExPress notes for this paper. We expect that you are keen to get on with the job in hand, so we will keep the introduction brief.

W .T HE

EX

First, we would like to draw your attention to the terms and conditions of usage. It’s a condition of printing these notes that you agree to the terms and conditions of usage. These are available to view at www.theexpgroup.com. Essentially, we want to help people get through their exams. If you are a student for the ACCA exams and you are using these notes for yourself only, you will have no problems complying with our fair use policy.

W

W

You will however need to get our written permission in advance if you want to use these notes as part of a training programme that you are delivering.

AT

WARNING! These notes are not designed to cover everything in the syllabus!

FU LL S

ET

They are designed to help you assimilate and understand the most important areas for the exam as quickly as possible. If you study from these notes only, you will not have covered everything that is in the ACCA syllabus and study guide for this paper. Components of an effective study system

On ExP classroom courses, we provide people with the following learning materials:

E

RE

PA

GE

S

 

The ExPress notes for that paper The ExP recommended course notes / essential text or the ExPedite classroom course notes where we have published our own course notes for that paper The ExP recommended exam kit for that paper. In addition, we will recommend a study text / complete text from one of the ACCA official publishers, but we do not necessarily give this as part of a classroom course, as we think that it can sometimes slow people down and reduce the time that they are able to spend practising past questions.

-F

 

MO

ExP classroom course students will also have access to various online support materials, including: The unique ExP & Me e-portal, which amongst other things allows “view again” of the classroom course that was actually attended. ExPand, our online learning tool and questions and answers database

DE





Page | 3



RO UP .

CO

M

Everybody in the World has free access to ACCA’s own database of past exam questions, answers, syllabus, study guide and examiner’s commentaries on past sittings. This can be an invaluable resource. You can find links to the most useful pages of the ACCA database that are relevant to your study on ExPand at www.theexpgroup.com.

How to get the most from these ExPress notes

ExP recommended course notes, or ExPedite notes

Prior to study, e.g. deciding which optional papers to take

Skim through the ExPress notes to get a feel for what’s in the syllabus, the “size” of the paper and how much it appeals to you.

Don’t use yet

At the start of the learning phase

Work through each chapter of the ExPress notes in detail before you then work through your course notes.

Work through in detail. Review each chapter after class at least once.

PA

Don’t make any annotations on the ExPress notes at this stage.

ACCA online past exams

Don’t use yet

Have a quick look at the two most recent real ACCA exam papers to get a feel for examiner’s style.

W AT Make sure that you understand each area reasonably well, but also make sure that you can recall key definitions, concepts, approaches to exam questions, mnemonics, etc.

Nobody passes an exam by what they have studied – we pass exams by being efficient in being able to prove what we know. In other words, you need to have effectively input the knowledge and be effective in the output of what you know. Exam practice is key to this. Try to do at least one past exam question on the learning phase for each major chapter.

DE

MO

ET

FU LL S

E

GE

S

-F

RE

Don’t try to feel that you have to understand everything – just get an idea for what you are about to study.

ExP recommended exam kit

W .T HE

These ExPress notes

W

Your stage in study for each paper

EX

PG

For people on a classroom course, this is how we recommend that you use the suite of learning materials that we provide. This depends where you are in terms of your exam preparation for each paper.

Page | 4


Don’t use at this stage.


These ExPress notes

ExP recommended course notes, or ExPedite notes

ExP recommended exam kit

ACCA online past exams

Practice phase

Work through the ExPress notes again, this time annotating to explain bits that you think are easy and be brave enough to cross out the bits that you are confident you’ll remember without reviewing them.

Avoid reading through your notes again. Try to focus on doing past exam questions first and then go back to your course notes/ ExPress notes if there’s something in an answer that you don’t understand.

This is your most important tool at this stage. You should aim to have worked through and understood at least two or three questions on each major area of the syllabus. You pass real exams by passing mock exams. Don’t be tempted to fall into “passive” revision at this stage (e.g. reading notes or listening to CDs). Passive revision tends to be a waste of time.

Download the two most recent real exam questions and answers.

RE

-F S

Read quickly through the full set of ExPress notes, focusing on areas you’ve highlighted, key workings, approaches to exam questions, etc.

DE

MO

PA

GE

At the door of the exam room before you go in.

Page | 5

CO

RO UP .

PG

EX

W .T HE

W W AT ET FU LL S

Read through the ExPress notes in full. Highlight the bits that you think are important but you think you are most likely to forget.

E

The night before the real exam

M

Your stage in study for each paper

Read through the technical articles written by the examiner. Read through the two most recent examiner’s reports in detail. Read through some other older ones. Try to see if there are any recurring criticisms he or she makes. You must avoid these!

Unless there are specific bits that you feel you must revise, avoid looking at your course notes. Give up on any areas that you still don’t understand. It’s too late now.

Don’t touch it!

Do a final review of the two most recent examiner’s reports for the paper you will be taking tomorrow.

Avoid looking at them in detail, especially if the notes are very big. It will scare you.

Leave at home.

Leave at home.


ExPress Notes

M

FIA MA1 Management Information

Notes

RO UP .

CO

Our ExPress notes fit into our portfolio of materials as follows:

Notes

EX

Provide a comprehensive coverage of the syllabus and accompany our face to face professional exam courses

W .T HE

Provide a base understanding of the most important areas of the syllabus only.

Provide detailed coverage of particular technical areas and are used on our Professional Development and Executive Programmes.

PG

Notes

AT

W

W

To maximise your chances of success in the exam we recommend you visit www.theexpgroup.com where you will be able to access additional free resources to help you in your studies.

FU LL S

ET

START About The ExP Group

-F

RE

E

Born with a desire to be the leading supplier of business training services, the ExP Group delivers courses through either one of its permanent centres or onsite at a variety of locations around the world. Our clients range from multinational household corporate names, through local companies to individuals furthering themselves through studying for one of the various professional exams or professional development courses.

As well as courses for ACCA and other professional qualifications, our portfolio of

PA

GE

S

expertise covers all areas of financial training ranging from introductory financial awareness courses for non-financial staff to high level corporate finance and banking courses for senior executives.

MO

Our expert team has worked with many different audiences around the world ranging from graduate recruits through to senior board level positions.

DE

Full details about us can be found at www.theexpgroup.com and for any specific enquiries please contact us at [email protected].

Page | 6



Chapter 1

FU LL S

ET

AT

W

W

W .T HE

EX

PG

RO UP .

CO

M

The Nature and Purpose of Cost and Management Information

KEY KNOWLEDGE

-F

RE

E

Business organisation and accounting systems

S

The business organisation and its structure

PA

GE

Taken in its most general sense, an organization is a social arrangement which aims for collective goals; in the case of a business, this usually involves the maximization of wealth of the shareholders (owners) of the business.

MO

An organisation controls its own performance and is distinct from its environment.

DE

Benefits of an organisation include:  shared expertise  pooling of resources

Page | 7



M

Policies, procedures and best practices

RO UP .

CO

A policies and procedures manual contains a description of the practices and rules governing an organisation’s operations.

PG

In setting standards for the performance of work, it ensures consistency across the organisation. Additional benefits of such a manual, normally distributed to all employees, include the mitigation of risk to the business (and to staff) as well as compliance with external regulatory requirements.

W .T HE

EX

By setting standards with reference to “best practices” – i.e. the best that the industry can demonstrate at any given moment -- the organisation is recognizing that it can only survive by doing at least as well as its competitors.

W

Effective control over transactions

AT

W

Effective control over transactions means that they are initiated, executed and recorded according to pre-set policies and procedures, so that the organisation is not exposed to an unacceptable level of risk of loss.

Double-entry book-keeping

FU LL S

ET

Controls exist to prevent and detect errors and fraud; for example, internal controls are processes put in place by management to help prevent things from going wrong. It is management’s responsibility for having an adequate internal control policy in place.

-F

RE

E

Double-entry bookkeeping involves the recording of transactions in such a way that two entries are recorded, one called a debit and the other a credit.

S

Debits mean

GE

An increase in assets

PA

A decrease in liabilities

Credits mean A decrease in assets An increase in liabilities

DE

MO

In this system, debits must equal credits.

Page | 8



CO

All accounting transactions are recorded in a document called a General Ledgers.

M

Ledgers and prime entry records

RO UP .

Books of prime entry are the bridge between the raw data (e.g. receipt for cash purchase of some building materials) and the accounting system. They may be written up by the accountant, or by a semi-trained member of staff within the client’s business.

EX

PG

The most commonly used books of original entry are:

Used to record data on:

Data typically used to feed:

Cash in book

Cash received into the business bank account.

Cash payments book

Cash paid from the business bank account.

Petty cash book

Cash in and out of the balance of cash held in notes and coins by the business (normally small). This is often controlled using the imprest system (see later).

Typically, small expenses (e.g. Friday cakes for staff!) and sundry income.

Sales day book

Sales on credit. Note that sales immediately settled in cash will be recorded in either the cash book (if paid directly into the bank account) or petty cash book (if received in notes and coins).

Sales revenue.

Purchases day book

Purchases of inventory for resale on credit. Note that purchases settled immediately in cash will be recorded immediately in the cash payments book or petty cash book.

Purchases of inventory for resale.

All sorts of things! Anything that may generate cash for the business. All sorts of things! Anything that results in cash being paid out of the business.

GE

S

-F

RE

E

FU LL S

ET

AT

W

W

W .T HE

Book of original entry:

DE

MO

PA

Journal book

Anything not covered by any of the other books of original entry.

Often, this is the book maintained by the accountant, in which “period 13” adjustments like depreciation and bad debts are recorded.

Books of original entry may be recorded in paper form, or using a spreadsheet.

Page | 9



M

Integrated and interlocking accounting systems

RO UP .

CO

An integrated system is one in which the cost and financial accounts are maintained in the same books;

PG

In an interlocking system, cost and financial accounts are kept separately (so that a reconciliation of the two must be made)

EX

Computerised accounting systems

W

W

W .T HE

Computerised systems are common and can be cheap. They still require rigorous systems for data capture at the point when transactions happen, as the maxim “garbage in, garbage out” very much applies! Input to a computerised system will not look like a book of original entry, but will require the same data. Software may be more user friendly, for example asking “how much cash was spent?” and “what was this for?”, whilst then offering a drop down menu of choices. The software will still prepare records using the same methodology as the manual recording systems above.

ET

RE

E

  

Back ups can be made easily Makes producing periodic frequent accounts much less laborious than a manual system Can be user-friendly Analyses sales taxes more easily than manual systems (see later) Can be used to quickly produce lots of reports such as VAT returns and interim management accounts.

FU LL S

 

AT

Advantages of using a computerised system include:

GE

S

Cost May not be tailored very well to the business own needs Still requires effective data capture and maintenance of the underlying records.

DE

MO

PA

  

-F

Disadvantages of a computerised system include:

Page | 10



RO UP .

CO

M

KEY KNOWLEDGE Management information

The purpose of management information

PG

Planning: has to do with the formulation of objectives within the organization, both in the short- and long-term;

W .T HE

EX

Decision-making: refers to conclusions drawn once all relevant information has been analysed. Implementation of decisions taken (i.e. the decision to take action) follows; Control: Post-implementation, actual results are analysed in order to determine whether planning and decisions taken need to be revised or to implement corrective actions.

AT

W

W

The control step acts as a feedback loop into the previous processes. Remember, look at these systems dynamically: we learn from experience and need to take corrective steps and to improve processes continuously!

FU LL S

ET

An important focus of management accounting is suggested by its original name, cost accounting. Knowing the costs of individual products is vital to running a business!

Comparison of cost and management accounting with external financial reporting

MO

PA

GE

S

-F

RE

E

Principal differences between financial accounting and management accounting:

DE

It particular, it should be noted that management accounting is:  Aimed at internal users (as opposed to financial accounting, which is aimed at external stakeholders)

Page | 11



M

 Focused on present and future performance (as opposed to financial accounting, which reports past performance)

RO UP .

CO

 Not required by law and not regulated by accounting frameworks (as opposed to financial accounting, which is a legal requirement and is regulated by accounting frameworks)  Focused on specific areas or activities (as opposed to financial accounting, which provides a holistic view of company’s performance)

PG

 Employs non-financial indicators as well financial, while financial accounting uses only financial measures.

W .T HE

EX

Since the management accounting system is based on (or derived from) a company’s financial accounting system, the two are usually combined (or integrated) for reasons of cost and efficiency, i.e. to avoid duplications.

W

Distinction between data and information

FU LL S

ET

AT

W

Management information systems convert raw data (facts and figures) into meaningful information which can then be used by management for a variety of analyses and ultimately decisions regarding the business. Good quality information enhances the quality of decisionmaking.

Accurate Complete Cost-beneficial Understandable Relevant Adaptable Timely Easy to use

MO

PA

GE

S

-F

RE

Using a well known mnemonic, information should be ACCURATE:

E

Features of useful management information. [K]

DE

Sources and categories of information: Financial and Non-financial In addition to financial information which can be extracted from the financial accounting records, managers rely for their decision-making on a host of information that is derived

Page | 12



CO

M

from non-financial sources. These can range from industry data (overall size, market shares of different competitors) to customer opinions about the products and services offered.

RO UP .

Internal examples of non-financial information

W .T HE

EX

PG

Non-financial information can embrace a host of operational statistics which are relevant to managerial decision-making: examples include the rate of staff turnover; the time it takes to cook a hamburger (in a restaurant business); the rate of defects in a production process; the set-up time necessary between different production batch runs; or measurements of service/product quality.

Limitations of cost and management accounting information

ET

The role of information technology

AT

W

W

The key to management accounting is to measure the “right” things, i.e. activities and processes that are relevant to the success of the business. Due to limitations of staff and time, it is necessary to identify and prioritize what is to be measured. Not all companies are successful in doing this and therefore squander resources measuring the wrong things!

FU LL S

Information technology has had a dramatic and far-reaching impact on the structure and conduct of business. IT has also been frequently poorly employed at great cost to companies.

RE

E

When implemented well, IT has made it possible for companies to exploit the benefits of increased accuracy of information and faster decision-making.

-F

Suitable formats for the presentation of management information according to purpose

DE

MO

PA

GE

S

Managerial accounting is a free-style form of accounting in which format and structure of information are not prescribed externally, but conform to the requirements of the users (management and staff).

Page | 13



CO

FU LL S

KEY KNOWLEDGE

ET

AT

W

W

W .T HE

EX

PG

RO UP .

Source Documents and Coding

M

Chapter 2

Source documents

-F

RE

E

When a business transaction happens, it is essential that the source data is captured immediately. This does not necessarily mean immediately writing up the books, but it does involve some record being made of the transaction happening.

S

Materials

PA

GE

The ordering, receiving and issuing of materials from inventory must be controlled according to procedures and documented at all stages with forms appropriate to the purpose.

MO

The controls and procedures are designed to monitor inventory movements so as to minimise discrepancies and losses and theft.

DE

Every company which buys, processes and sells materials will have established procedures for ordering, receiving and issuing (such materials) which are generically similar. Some may have highly automated systems in place, while others record the steps manually.

Page | 14



M

The key documents one should be familiar with are:

RO UP .

CO

Purchase requisition form: This is an internal form that provides the authorization for materials to be ordered from a supplier (external).

Purchase order (PO): The buyer issues a PO to the seller, indicating the Description Quantity Price

PG

  

EX

of the product ordered.

W .T HE

The PO is a legal offer. Its acceptance by the seller creates a contractual commercial relationship for the intended transaction.

ET

AT

Order No. Description Quantity ordered Quantity delivered

FU LL S

   

W

W

Goods Received Note (GRN): This is completed by the buyer upon delivery to verify whether the order has been properly fulfilled. It will contain:

Materials issuance (or requisition) form: This is the form necessary to authorize the release of materials from inventory into the production process at the company.

RE

E

Labour

S

-F

Labour is evidenced by work contracts. The payroll function is responsible for ensuring prompt payment of salaries and wages to employees.

GE

Documents relating to the recording of sales

PA

Sales order

MO

Goods despatched note

Records that an order from a customer has been sent out A request for payment by a supplier

DE

Invoice

Records an order from a customer

Page | 15
