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Chapter One: Chapter One: Accounting: Information

for Decision Making

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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.

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Types of Accounting Information

Financial

Managerial

Tax

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Information Users

InvestorsCreditors ManagersOwnersCustomersEmployeesRegulators -SEC -IRS -EPA

Information Users

InvestorsCreditors ManagersOwnersCustomersEmployeesRegulators -SEC -IRS -EPA

Decisions Supported

Performance evaluationsStock investmentsTax strategiesLabor relationsResource allocationsLending decisionsBorrowing

Decisions Supported

Performance evaluationsStock investmentsTax strategiesLabor relationsResource allocationsLending decisionsBorrowing

Information SystemInformation System

Financial Information

ProvidedProfitability

Financial position

Cash flows

Financial Information

ProvidedProfitability

Financial position

Cash flows

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Basic Functions of an Accounting System

Interpret and record business

transactions.

Payment

Car

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Basic Functions of an Accounting System

Summarize and

communicate information to

decision makers.

Classify similar

transactions into useful

reports.

Interpret and record business

transactions.

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External Users of Accounting Information•Owners

•Creditors

•Labor unions

•Governmental agencies

•Suppliers

•Customers

•Trade associations

•General public

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Provide information about economic resources, claims to resources, and changes in resources and claims.

Provide information useful in assessing amount, timing and

uncertainty of future cash flows.

Provide information useful in making investment and credit decisions.

(Specific)

(General)

Objectives of

Financial Reporting

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Objectives of External Financial Reporting

The primary financial

statements.

Income Statement

Balance Sheet

Statement of Cash Flows

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Characteristics of Externally Reported Information

A Means to an End

A Means to an End

Broader than Financial

Statements

Broader than Financial

Statements

Historical in Nature

Historical in Nature

Results from Inexact and Approximate Measures

Results from Inexact and Approximate Measures

Based on General-Purpose

Assumption

Based on General-Purpose

Assumption

Usefulness Enhanced via Explanation

Usefulness Enhanced via Explanation

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Users of Internal Accounting Information

Board of directors Chief executive officer (CEO) Chief financial officer (CFO) Vice presidents Business unit managers Plant managers Store managers Line supervisors

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1-12Typical S im ple O rganization C hart

PlantAccountant

PlantManager

PlantAccountant

PlantManager

Business UnitManager

V.P. HumanResources

V.P. InformationServices

Chief FinancialOfficer (CFO)

Chief ExecutiveOfficer(CEO)

Board ofDirectors(Owners)

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Objectives of Management Accounting Information

To help achieve goals and missions

To help achieve goals and missions

To help evaluate and reward

decision makers

To help evaluate and reward

decision makers

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Characteristics of Management Accounting Information

TimelinessTimeliness

Identify Decision

Maker

Identify Decision

Maker

Oriented Toward Future

Oriented Toward Future

Measures of Efficiency and Effectiveness

Measures of Efficiency and Effectiveness

A Means to an End

A Means to an End

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Integrity of Accounting Information

Institutional FeaturesGenerally Accepted Accounting Principles (GAAP)Financial Accounting Standards BoardSecurities and Exchange CommissionInternal Control StructureAuditsLegislation

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Integrity of Accounting Information

Professional OrganizationsAmerican Institute of Certified Public Accountants Institute of Management AccountantsInstitute of Internal AuditorsAmerican Accounting Association

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Integrity of Accounting Information

Competence, Judgment and Ethical BehaviorCertified Public Accountants (CPAs)Certificate in Management Accounting (CMA)Certificate in Internal Auditing (CIA)Code of Professional Conduct

CPA

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Integrity of Accounting Information

Careers in AccountingPublic AccountingManagement AccountingGovernmental AccountingAccounting Education

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End of Chapter One