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| Question | Answer |
| Define accounting | The process of identifying, measuring and communicating economic information to assist users with decision and informed judgements. |
| What is the difference between Financial accounting and management accounting? | Financial accounting is to provide information to external parties outside the company, management accounting is information to assist the internal parties within the company |
| Define characteristics of management accounting | * For internal use: managers and employees * Feeds back on operating performance *It's timely and future orientated *Tailor made to internal needs |
| Define characteristics of financial accounting | * For external use: shareholders * Reports on past performance * Delayed and historical information *Regulated by IAS and GAAP |
| What is management accounting useful for? | 1. Determining costs and benefits 2. Developing long-term plans 3. Allocating resources 4. Performance evaluation and control |
| 4 phases in developing Management Accounting | 1. Internal processing (determining costs of goods) 2. Short term planning and control 3. Controlling costs: waste reduction 4. Generating shareholder value and external value |
| Which costs are NOT relevant for FUTURE decision making? (Irrelevant costs) | * Committed costs * Past/Historic costs |
| Which costs must be taken into account for future decision making (Relevant costs) | * Opportunity Costs * Future outlay costs |
| Define committed costs | They are future costs that have been committed prior to the decision being made. They do not vary making them an irrelevant cost. |
| What are 2 conditions for Relevant Costing? | 1. The cost must vary with each decision 2. Cost must relate to the Future and relate to the Wealth of the business |
| Define a Past/Historic/Sunk cost | Costs that have already been incurred. They have no effect on future decisions and cannot be changed. |
| Define an outlay cost | An outlay cost is the amount on money have will have to be spent to achieve an objective. |
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