Accounting: Information Management and Decision Making - Prof. Cintia M. Easterwood | Study notes Financial Accounting

Chapter One

What is accounting?

System: for providing info to users

Data: facts and figures (total sales, costs, etc)

Information = data that has been organized, processed and summarized

Knowledge = information that has been shared and exploited to add value to an organization

Decision usefulness

Knowledge Management Tools

Data warehouses: quantitative data store

Knowledge warehouses: qualitative data store

oIncludes client and customer notes, product specifications, new articles, memos, etc.

Enterprise Resource Planning (ERP) Systems: huge system with different modules

oUltimate goal of ERP = get the right information to the right people at the right time

Electronic Data Interchange (EDI): very efficient and fast

oBenefits of EDI = increased speed and quality of information exchange, reduced lead

times, and reduced processing costs

Financial Accounting Managerial Accounting

Users External (investors, customers, etc) Internal (managers, employees)

Time Focus Historical perspective – guarantees more

accuracy

Future emphasis (what direction

can we go in?

Precision vs. Timeliness Emphasis on precision Emphasis on timeliness

Flexibility Less flexible More flexible

Subject Summarized data for whole organization Segments

GAAP Must follow GAAP N/A because you’re not

reporting to the outside

Requirements Mandatory – SEC requires certain things Not mandatory

Work of Management - Planning, Operating & Controlling Activities

Planning – Operational (short term goals and objectives – usually during the year)

Strategic (long term goals and objectives – expansion)

Operating – managing day to day activities, how many burgers do I need to sell today?

Controlling – make sure goals are achieved, evaluate and measure, detect and correct problems

Information needs of management

Operations & Production: make decisions about how and when products and services are

produced or provided

Marketing: need to know how much a product costs in order to help establish a reasonable

selling price

Finance: make decisions about how to raise capital as well as where and how it is invested

Human Resources: support other managers by recruiting and staffing, designing compensation

and benefit packages, and providing training and development opportunities for employees

The role of a managerial accountant is to provide information useful to decision-making.

Decision Making Model

1. Define the problem

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Chapter One What is accounting?  System: for providing info to users  Data: facts and figures (total sales, costs, etc)  Information = data that has been organized, processed and summarized  Knowledge = information that has been shared and exploited to add value to an organization  Decision usefulness Knowledge Management Tools  Data warehouses: quantitative data store  Knowledge warehouses: qualitative data store o Includes client and customer notes, product specifications, new articles, memos, etc.  Enterprise Resource Planning (ERP) Systems: huge system with different modules o Ultimate goal of ERP = get the right information to the right people at the right time  Electronic Data Interchange (EDI): very efficient and fast o Benefits of EDI = increased speed and quality of information exchange, reduced lead times, and reduced processing costs Financial Accounting Managerial Accounting Users External (investors, customers, etc) Internal (managers, employees) Time Focus Historical perspective – guarantees more accuracy Future emphasis (what direction can we go in? Precision vs. Timeliness Emphasis on precision Emphasis on timeliness Flexibility Less flexible More flexible Subject Summarized data for whole organization Segments GAAP Must follow GAAP N/A because you’re not reporting to the outside Requirements Mandatory – SEC requires certain things Not mandatory Work of Management - Planning, Operating & Controlling Activities Planning – Operational (short term goals and objectives – usually during the year) Strategic (long term goals and objectives – expansion) Operating – managing day to day activities, how many burgers do I need to sell today? Controlling – make sure goals are achieved, evaluate and measure, detect and correct problems Information needs of management  Operations & Production: make decisions about how and when products and services are produced or provided  Marketing: need to know how much a product costs in order to help establish a reasonable selling price  Finance: make decisions about how to raise capital as well as where and how it is invested  Human Resources: support other managers by recruiting and staffing, designing compensation and benefit packages, and providing training and development opportunities for employees The role of a managerial accountant is to provide information useful to decision-making. Decision Making Model

Define the problem

Identify objectives
Identify and analyze available options
Select the best option Relevant costs – costs that differ between alternatives Opportunity costs are relevant Sunk costs are not relevant Sensitivity analysis – the process of changing the values of key variables considered in an analysis to determine how sensitive decisions are to those changes.

Accounting: Information Management and Decision Making - Prof. Cintia M. Easterwood, Study notes of Financial Accounting

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