莫斯科物理科学与技术学院

Core Concepts of Accounting – Numbers and People

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Course 3 of 5 in the Specialization Understanding Modern Finance

Whenever the word “accounting” is pronounced, it is immediately associated with the need to memorize endless boring numbers. However, it is the common financial statements that contain important information that provides inputs for valuation of investment projects. The only challenge is how to properly extract them. Accounting and finance are indeed intertwined. Sometimes people that are not experienced in the area even mix them up. But most often emphasis in accounting is on numbers. Still, the deep understanding of key accounting concepts helps reveal the interests and actions of people behind these numbers. And the human dimension of accounting adds invaluable insight in the potential of successful project implementation. This Course discusses core ideas and concepts of both financial and managerial accounting. It by no means pretends to be comprehensive to any extent. But, being rather an accounting overview, it focuses on the issues that are most relevant and important for effective valuation of investment projects. The learners will gain insight into the essence of accounting. They will be able to use the obtained knowledge and skills to successfully advance in their career at a financial institution, as well as in the area of financial management at non-financial businesses. To pursue a career in accounting, a more detailed study is strongly recommended.

From the lesson

Budgets and Responsibility Accounting. Accounting and Valuation – Final Conclusions

Week 6, the final week of the Course, is devoted to the discussion of budgets and responsibility accounting as powerful tools of improving efficiency and quality of managerial decision making. A comprehensive example of preparing the operational budget will help reveal the interdependence of different areas of management in the budgeting process. We will also discuss responsibility accounting in some more detail to follow relationships between decision makers, processes, and results – or, as we call it, numbers and people. We will comment on some major trends in approaching budgeting in the fast changing, uncertain, and complex world. Finally, we summarize the contribution of accounting to the valuation of investment projects. As a result, you will be able to successfully apply the obtained knowledge and skills well beyond accounting, but in any financial and managerial area.

6.1. Budgets – an overview. The budgeting cycle11:23

6.2. Budgets, planning and project management13:20

6.3. The master budget – an idea6:23

6.4. Operational budget – the data (1)13:09

6.5. Operational budget – the data (2)5:22

6.6. Preparing operational budget (1)3:16

6.7. Preparing operational budget (2)6:58

6.8. Preparing operational budget (3)6:40

6.9. Preparing operational budget (final steps)7:44

6.10. Budgeting and responsibility accounting16:57

6.11. Changes in budgeting – major trends8:01

6.12. Accounting and valuation – final conclusions7:13

Meet the Instructors

Konstantin Kontor
Director and Professor of Finance and Strategy
American Institute of Business and Economics (AIBEc)

Well, now, from the overall overview of budgets, we are narrowing the focus.

And I will say a few words about the idea of the master budget.

So what is the master budget?

Well, from the, Words,

you can think that this is something comprehensive,

something organization wide.

And that is important to ensure coordination, and that is all right.

So again, the idea here is that,

that is organization wide and comprehensive.

So we are talking about,

The qualified plans for all activities of the company.

And the general areas of activity are, and I'll put them here.

This is first of all, operating budget.

And then on the next page we will talk about the financial budget.

Like oftentimes,

when people talk about budgets, they think that this is sort of financial budget.

But the financial budget is the result of that, and

we here talk about analyzing and understanding.

And what is the operating budget?

I will break it down in pieces.

So it deals with budgeting, that means forecasting and planning.

Revenues, Inventories,

Production, And

again, in production here, we talk about direct materials.

We talk about direct labor, And

we talk about manufacturing overhead.

So basically, here we talk about revenues, inventories, now we move closer to costs.

Then we have cost of goods sold.

Then we have other costs.

And these include, for example,

R&D, marketing, G&A.

And all that contributes, To the budgeted,

Income statement of the company.

So that is sort of the interim bottom line in this.

So we will have a very comprehensive example of preparing the operating budget.

That starts in the next episode, but for now that's the key story.

And you can see that although that sometimes looks boring, but

you can see here that as always in managerial accounting,

we oftentimes deal with non-financial parameters.

Later we will affix some labels to them.

But when we talk about inventories, we have to keep in mind the physical amount

of pieces of raw materials or finished goods or work in progress.

So this is not such a trivial thing.

And after having done all that,

we move on to the overall picture of the master budget that,

let's say we start with the budgeted income statement.

So this was the result of the operating budget.

But then we also have to think about our capital.

And this our capital budget.

Then it leads to cash budget and that goes to the balance sheet budget and

here income statement contributions.

And then finally that goes to the statement of cash flow budgets.

So all that is budgeted.

And now you can realize how important it is and

how cumbersome that may become.

Because like I said, to do this we will use a few episodes, maybe as many as five.

And for all of this, it is also kind of important.

And again, the budgeting of balance sheet and

statement of cash flow is somewhat a very picky thing.

So here we have to be quite accurate.

And that goes somewhat beyond the scope of this course because the only way to

become more or less advanced in that is to prepare many of these budgets.

And not all of you are doing that on a regular basis and not planning to.

But it is important to keep in mind that in reality not only for

the company in general, but for the project in itself,

we also have to keep in mind all these things.

And again, I am wrapping up this introductory part

by the quote that I could have pronounced earlier.

But this is kind of important.

We seem to be obsessed about planning and plan linked activities here.

Why is that important?

Because as one saying goes, few businesses plan to fail.

But those who do flop, they fail to plan.

So therefore, we prepare all this budgets in the hope of not failing.

Starting the next episode, we will analyze the steps, stages, and procedures and

calculations that are linked to the preparation of the operating budget.