Discussion Questions

1. What is Management?
Management is the process of making decisions to achieve
organizational objectives.

2. Enumerate and discuss the four basic functions of
management.
The four basic functions of management are Planning,
Organizing, Leading and Controlling.
Planning is the process of translating the goals and objectives
of an organization and developing a strategy for achieving
those goals in a systematic manner. Goals are abstract
achievements while objectives are desired quantifiable
achievements for a period of time. These objectives must be
set in logically desired results based on goals.
Organizing is the grouping together of men and establishing
relationship among them, defining the authority and
responsibility that the personnel have in the use of the
organizations material resources to attain predetermined
goals and objectives. The process of organizing involves the
following steps:
1. Determination of objectives;
2. Division of activities;
3. Fitting individuals to specific jobs; and,
4. Developing relationship in terms of authorities and
responsibilities.
Leading requires managers to motivate employees to achieve
business objectives and goals. It requires the use of authority
to achieve those ends as well as the ability to communicate
effectively. Effective leaders are students of human
personalities, motivation and communication. They can
influence their personnel to view situations from their
perspectives. Leading also involves supervision of employees
and their work.
Controlling is the process of setting performance with
standards and taking corrective measures or actions when
operations do not conform standards or with what is
expected. Performance evaluation is a must in controlling.
Managers must review the accomplishments and compare it
with what was panned called performance evaluation. It is a
process of determining the degree of success in
accomplishing the plan.

3. What is Management Accounting?
Management Accounting is a phase of accounting concerned
with providing information to managers for use inside the
organizations.

4. What is Financial Accounting?
Financial Accounting is the field of accounting that develops
information primarily intended for external users such as
stockholders, suppliers, banks and government regulatory
agencies.

5. What is cost accounting?
Cost Accounting is the field of accounting that creates an
overlap between financial accounting and management
accounting.

6. Discuss how management accounting, financial
accounting and cost accounting are related and how
they are used by managers in their management
functions.
Cost accounting integrates with financial accounting by
providing product costing information for financial
statements and with management account by providing some
of the quantitative, cost-based information managers needed
to perform their functions.
Financial Accounting records the transactions that has
already passed (history). It tells the mangers if they have met
their goals and/or objectives.
Cost Accounting calculates the costs of manufacturing
products or provision of services (present). Cost accounting
serves as a tool in helping the management to achieve their
goals in terms of better decision making. If the costs of a
certain product or service is too high and it cant generate
enough profit, then the management should decide to
whether continue manufacture that product or still provide
the service.
Management Accounting uses past accounting records and
applies some method of calculation for preparation of future
undertakings (future). It helps the management to translate
their goals and objectives.

7. Enumerate the four major objectives of
management accounting.
The four major objectives of management accounting activity
are:
1. Providing managers with information for decision
making and planning.
2. Assisting managers in directing and controlling
operations.
3. Motivating managers toward achieving
organizations goals.
4. Measuring performance of managers and sub-units
within the organization.

8. Enumerate the three different functions of
accounting information.

a. Accounting information plays a vital role in
linking the objectives of top managers to the
incentives of segment managers.
b. Accounting information is normally the basis for
measuring or evaluating segment managers in
terms of efficiency and effectiveness.
c. Accounting information is used in evaluating the
performance of segment managers, called
responsibility accounting. Strategy formulation
is the foundation level of organizational
planning.

9. Enumerate the six basic distinguishing characteristics
of management accounting discussed in this text.

a. Management accounting has no constraints,
may be other than costs, as to benefits of
improved management decisions.
b. Behavioural implication is evident, as it concerns
how measurements and reports will influence
managers daily behaviour.
c. Management accounting is called to be time
focus. The users of management accounting
reports always compare the past and its
relationship to the future.
d. Management accounting reports could vary in
period coverage. It could be as long as 5 to 10
years or as short as daily.
e. Management accounting reports could be as
detailed as it could be. Sales could be presented
in total or as detailed as to by product line, by
territory, by department or as detailed by agent.
f. Management accounting covers so many fields
of discipline. Usually managers heavily use the
field of economics, decision sciences,
behavioural sciences or sometime even political
science.

10. Enumerate the most common decisions managers
usually do. Give at least four.
a. Acquiring and financing production capacity.
b. Determining which products to produce and
market.
c. Pricing products, jobs or services.
d. Determining the best method of distributing
goods and services to the target market.
e. Locating the best property for production
facilities.
f. Financing the costs of production and
operations.



11. Define an accounting system.
An accounting system is a formal mechanism for gathering,
organizing and communicating information about an
organizations activities. It is the method used by business
about an organizations activities. It is the method used by
business to process its data through the accounting cycle. It is
also defined as an orderly, efficient scheme for providing
accurate financial information and controls.

12. Enumerate three basic uses of accounting system.
a. Routine reporting to management, primarily for
planning and controlling current operations;
b. Special reporting to management, primarily for
long-range planning and short-term but non-
recurring decisions.
c. Routine reporting on financial and operating
results, primarily for external parties.

13. Enumerate and discuss the four basic components of
accounting system.
a. Forms are documents on which the data is
recorded. Ex. Official receipts, sales invoices,
checks, and other similar business documents.
b. Equipment consists of devices and machines
such as computers, cash registers and other
business machines, vaults or even filing
cabinets.
c. Procedures are series of operations or steps
that must be performed to complete a task. Ex.
Sales order forms will be filled up by the person
subject to the approval of the authorized person
before any delivery will be made.
d. People no matter how sophisticated the other
components of the organization have, an
accounting system can only function efficiently
and effectively if the people who are involved
performs their duties carefully and accurately.

14. Enumerate and discuss the six basic guidelines in
setting a good system design.
a. Flexibility it is very important that the system
is adaptable to meet changing circumstances
and demands.
b. Reliability accuracy and timeliness are both
relative and subjective evaluation of
information. The systems must also be string
and can stand up to misuse, both deliberate and
accidental.
c. Simplicity the system must be simple and easy
to understand by the people in the organization.
d. Helpfulness it is not just the achievement of
goals and objectives, but also the usefulness of
the system to those who have to work with it.
Ex. Softwares should be user-friendly to be
useful.
e. Economy It is always related to the idea of
cost-benefit analysis. An accounting system may
be too good but too costly for an organization.
f. Control mechanisms accounting system must
contain controls to ensure accuracy, honesty
and efficiency and speed.

15. Enumerate and discuss the elements of good
internal control. Give at least five.
a. Reliable personnel Personnel should be given
duties and responsibilities appropriate to their
interests, experience and capabilities.
b. Separation of duties Recording and
custodianship functions of assets should not be
in the hands of one person. No one must be in
complete or total control of any activity.
c. Supervision Each superior oversees and
appraises the performance of his subordinates.
d. Responsibility Responsibility of every
personnel must be clearly laid out to trace who
should be praised and who should be punished.
e. Document control This means immediate,
complete and temper-proof recording.
f. Job rotations and forced leaves and bonds
employees handling functions should be forced
to take some vacation leaves and be rotated
occasionally; and if possible to place surety
bonds.
g. Periodic review of the system periodic review
of all phases of the system by internal or
external auditors are necessary.
h. Physical safeguards safe boxes, lock, and
other safety measures must be installed and
limited access to authorized personnel will
minimize asset and record losses.
i. Routine and spot checks Routine but
unscheduled checks must be done by authorized
personnel to prevent commission of fraud at
any time.
j. Cost feasibility Benefits should outweigh costs
in setting up internal control systems in all
cases.

16. Enumerate and discuss the three accounting
systems control mechanisms.
a. Accuracy records are checked for accuracy at
various stages of the accounting cycle.
b. Honesty effective controls are needed to
prevent temptation of mishandling, theft and
other possible commission of fraud and
irregularities.
c. Efficiency and speed it is essential that the
records be designed so that more than one
person can work on related records at the same
time. It refers to the theory of check and
balance.


























































17. Draw a diagram depicting the elements of a computerized accounting system.








Board of
Directors
President
VP for Sales VP for Finance
Treasurer
Credit Manager
Inventory
Manager
Diretor of
Capital
Budgeting
Controller
Cost Accounting
Financial
Accounting
Tax Department
VP for
Manufacturing


18. Define the term Cost Management Accounting
Cost management accounting is a set of formal methods
developed for planning and controlling an organizations cost
activities to achieve its set of goals and objectives.

19. Enumerate the characteristics of an organization
must possess in order the cost management system
to work effectively.
a. Specified strategic goals to which its operating
position is aligned.
b. Updated technology, human behaviour and
information systems that are integrated to its
management and operating systems.
c. To engage in intergroup coordination and
coordinated management through employee
empowerment.
d. Focus on the cost elimination rather than cost
allocation, the use of activity-based
management approach is suggested.
e. Performance evaluation that relies on both
financial and nonfinancial measurements.
f. To utilize changing technologies and embracing
customer values and customer satisfaction as
the major part of organizational culture to be
able to confront high-quality worldwide
competition.

20. Enumerate the objectives of cost management
system.
a. To develop fairly accurate product costs by
using cost drivers
b. To assess product or service life-cycle of
activities and processes
c. To control costs
d. To measure performance
e. To pursue organizational strategies.

Review Exercises and Problems

TRUE OR FALSE
1. False
2. False
3. False
4. True
5. False
6. False
7. True
8. True
9. False
10. False



MULTIPLE CHOICE QUESTIONS

1.B
2.B.
3.C.
4.C.
5.B.

TEST MATERIALS

TRUE OR FALSE

1. FALSE
2 .FALSE
3. TRUE
4. TRUE
5. FALSE
6. TRUE
7. FALSE
8. TRUE
9. TRUE
10. TRUE

II. MULTIPLE CHOICE QUESTIONS

1.A.
2.A.
3.D.
4.A.
5.A.
6.A.
7.CONTROLLING AND PLANNING
8.B.
9.A.
10.C.

























CHAPTER 2

Discussion Questions
1. What is Financial Statement Report?
Financial statements provide the basic source of
information by managers and other interested parties
outside the organization regarding its financial
conditions and results of operations.

2. What are the primary financial statement
reports? Discuss each kind.
a. Balance Sheet presents financial condition
of the company at a given date. This
statement shows the total assets, total
liabilities and total owners equity
accumulated to date.
b. Income statement reports the income and
expenses in a given period. This statement
shows the total revenues or sales earned,
the cost of sales or service and operating
expenses incurred in such given period.
c. Cash flow statement show how cash was
obtained during the period and how it was
used in a given period. This statement
shows the sources and uses of cash
categorized as from operating activities,
investing activities and financing activities
also in such given period.

3. Discuss the objectives of financial statement
analysis?

4. What are the two basic financial statement
analysis techniques?
The two basic financial statement analysis techniques
are horizontal and vertical analysis of analysing financial
statements.

5. Define Horizontal Analysis of analysing financial
statements.
a. Horizontal Analysis is comparing two
periods and becomes trend analysis if
extended to three or more periods having
the earliest year as the base period.
Percentage changes


b. and relative ratios are widely used in
comparative and trend analyses.


6. Define vertical analysis of analysing financial
statements
a. Vertical analysis, also known as common-
size statements, is the analysis of the
component parts of a single statement in a
given period.

7. What is trend analysis?
An extended horizontal analysis could be developed as
the so called Trend Analysis.

8. What is a ratio analysis?
Ratio analysis is designed to show relationships
between financial statements accounts.

9. What is the so-called notes to financial
statement analysis? Discuss the importance to
financial statement analysis.
These narratives provide greater detail of
information that is included very concisely in the
financial.
10. Why do you think the use of borrowed funds is
usually practiced by businessmen?

11. Enumerate the two reasons why financial
leverage improves the rate of returns to
stockholders or owners.

- Since interest is deductible for income tax
purposes, the use of debt financing lowers
the income taxes and leaves more of the
firms operating income available to its
investors.
- If the rate of return of assets exceeds the
interest rate on debt, as it generally does,
then a company can use debt to finance
assets, pay the interest on the debt and
have something left over for its
stockholders.

12. Discuss the limitations in financial statement
analysis.
Financial statements and the financial ratios derived
from them are but a single source of information about
a company. Like any management accounting
information, financial ratios serve only as an attention
directing device. The ratios raise questions more often
than they answer them. An analyst must follow up the
financial statement analysis with in-depth research on a
companys management styles, its history and trends,
the industry and the national and international
economies in which the firm operates.

13. What is a working capital?
Current assets minus current liabilities.

14. What is a financial leverage?
It is the term used to describe the importance of risk
and return introduced through the use of fixed-cost
financing such as debt and preferred stock.

15. Outline the formula of the following ratios and
discuss each terms.
a. Current asset and current asset ratio
Current asset ratio = current assets divided by current
liabilities.
This is the basic test liquidity of the firm. This will
determine the adequacy of working capital of the ability
to meet current obligations. The higher the current
asset ratio, the better, as this would mean there are
more current assets available for paying its current
liabilities.
b. Quick assets and quick asset ration
Quick asset = quick assets divided by current liabilities
Quick or acid test ratio is a more stringent test of ability
to pay current obligations as they come due. The higher
the quick asset ratio, the better liquidity position of the
firm.
c. Accounts Receivable Turnover
AR = Net credit sales divided by average AR
Average AR = (beg + end) divided by 2
This will measure the efficiency of collections or how
fast collections are being made.

d. Inventory turnover
Inventory turnover = cost of sales divided by Average
Inventory
Average inventory = (beg + end) divided by 2

Similar with accounts receivable, inventory turnovers
are used to determine how fast inventory were
converted into sales.

e. Debt to total asset ratio
Debt to total asset ratio = Total debt divided by total
assets
This is the ratio of total liabilities to total assets. It
measures to what extent that portion of the total assets
provided by the creditor.

f. Debt to equity ratio
Debt to equity ratio = total liabilities divided by total
stockholders Equity (Debt Equity Ratio)

It measures the resources provided by the owners in
the business. It provide information on the equivalent
amount provided by creditors for every peso provided
by the owners. Total liabilities means both current and
long-term liabilities.

g. Profit Margin Ratio

h. Total Asset Turnover
Total Asset Turnover = Sales divided by Total Assets
This determines the number of times investments in
assets are reinvested in sales. The more the number of
times it turnover, means the higher profit the company
utilized its assets.

i. Return on Total Asset
ROA = Net income available to common stock divided
by Total Assets

j. Return on sales
ROS = Net income divided by net sales

k. Return on equity
ROE = Net income available to common stock divided
by the average common stock equity

l. Earnings per share
EpS = Net income available to common stockholders
divided by Weighted Average Number of Shares
Outstanding

m. Dividend per share
DpS = Dividends paid to common stock divided by
Common Shares Outstanding

n. Dividend payout ratio
DPR = Dividends per share of common stock divided by
EpS

o. Dupont Formula in determining Return on
Assets (ROA)

It is the most popular formula in analysing profitability
of the company. DuPont formula allows the firm to
break down its return into the net profit margin, which
measures the firms profitability on sales and its total
asset turnover which indicates how efficiently the firm
has used its assets to generate sale. DuPont formula
multiplies the firms net profit margin by its total asset
turnover to calculate the firms return on total assets
(ROA). Its basic ratios are:
a. Net Profit Margin ratio
b. Total asset Turnover
c. Equity multiplier or the debt ratio
ROA = Net Profit Margi x Total Asset Turnover



TRUE OR FALSE STATEMENTS

1. FALSE
2. TRUE
3. FALSE
4. FALSE
5. TRUE
6. TRUE
7. TRUE
8. FALSE
9. TRUE
10. TRUE
11. TRUE
12. FALSE
13. FALSE
14. TRUE
15. FALSE
16. FALSE
17. TRUE?
18. FALSE
19. FALSE
20. FALSE

MULTIPLE CHOICE

1. A.
2. A.
3. D.
4. A.
5. A.
6. D.
7. B.
8. B OR C :P
9. D.
10. C.
11. D.
12. A.
13. C.

PROBLEMS

PROBLEMS 2.1

1.
a. 35000 (increase)
b. -10000 (decrease)
c. 105000 (increase)
d. -30000 (decrease)
e. 2000 (increase)
2.
a. 25% d. -15%
b. -25% e. 10%
c. 14%



PROBLEM 2.2
Item Year 3 Year 2 Year 1
Net Sales 113 106 100
Cost of Goods
Sold
110 103 100
Gross Profit 119 113 100

PROBLEM 2.3
1.Cost of goods sold/Average inventory
= 600,000/(130,000+150,0002)
= 4.285
2.Net income/Interest Expense
= 150,000/40,000
= 3.75
3.Net income/Average accounts receivable
= 150,000/(175,000+200,0002)
= 0.8
4.Net income/Average total assets
= 150,000/(1,100,000+800,0002)
= 15.8%



TEST MATERIALS

TRUE OR FALSE

1. TRUE
2. FALSE
3. TRUE
4. TRUE
5. TRUE
6. TRUE
7. TRUE
8. TRUE
9. TRUE
10. FALSE
11. FALSE
12. TRUE
13. TRUE
14. FALSE
15. TRUE
16. TRUE
17. TRUE?
18. TRUE
19. TRUE
20. FALSE
21. FALSE
22. FALSE
23. FALSE
24. TRUE
25. TRUE
26. TRUE

MULTIPLE QUESTIONS
1. D.
2. D.
3. B.
4. D.
5. A.
6. B.
7. B.
8. A.
9. B.
10. D.