Accounting Information and Decision Making: A Comprehensive Guide, Study notes of Accounting

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ACCOUNTING:

Information for Decision Making

Chapter

Presented by:

Endra M. Sagoro

Economic Faculty YSU [email protected]

Accounting

information

The

accounting

process

Decision

makers

Economic

activities

Actions

(decisions)

Accounting “links” decision makers with economic activities  and with the results of their decisions.

Information Users Investors Creditors Managers Owners Customers Employees Regulatory agencies -SEC -IRS -EPA

Decision Support CVP analysis Performance evaluation Incremental analysis Budgeting Capital allocation Earnings per share Ratio analysis

Information System

Cost & Revenue Determination Job costing Process costing ABC Sales Assets & Liabilities Plant and equipment Loans & equity Receivables, payables & cash Cash Flows From operations From financing From investing

Basic Functions of an Accounting

System Interpret and record business

transactions.

Payment

Car

Objectives of External Financial

Reporting

Cash Flow Prospects

Investors Creditors

Return on

Investment

Periodic

dividends

Periodic

interest

Return of

Investment

Sale of

ownership at a

future date

Repayment of

loan at a

future date

The primary external users of financial information are

investors and creditors.

Information about economic

resources, claims to resources, and

changes in resources and claims.

Information useful in assessing amount, timing and uncertainty of future cash flows.

Information useful in making investment and credit decisions.

(Specific)

(General)

Objectives

of

Financial

Reporting

Financial Statements

Financial Statements:

A Lens to View Business

Characteristics of Externally

Reported Information

A Means to

an End

Broader than

Financial

Statements

Historical in

Nature

Results from Inexact and

Approximate Measures

Based on

General Purpose

Assumption

Usefulness

Enhanced via

Explanation

Typical Simple Organization Chart

Plant Accountant

Plant Manager

Plant Accountant

Plant Manager

Business Unit Manager

V.P. Human Resources

V.P. Information Services

Chief Financial Officer (CFO)

Chief Executive Officer (CEO)

Board of Directors (Owners)

Information about decision-making authority, for decision-making support, and

for evaluating and rewarding decision-making

performance.

Information useful in assessing both the past performance and future directions of the enterprise and information from external and internal sources.

Information useful to help the enterprise achieve its goal, objectives and mission.

Objectives

of

Managerial

Reporting

Integrity of Accounting Information

Institutional Features

Generally Accepted Accounting Principles (GAAP)

Financial Accounting Standards Board

Securities and Exchange Commission

Internal Control Structure

Audits

Integrity of Accounting Information

Professional Organizations

American Institute of Certified Public Accountants

Institute of Management Accountants

Institute of Internal Auditors

American Accounting Association

Reference

Williams et al. 2011. Financial and Managerial Accounting: The Basis for Business Decision 16 ed. New York: McGraw-Hill.