Accounting:

Information for Decision Making

Chapter 1

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The Accounting Process

Economic Activities

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

Accounting Information

Actions (decisions)

Decision Makers

Reported Results of Actions (decisions)

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Types of Accounting Information

Financial Tax

Management

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Accounting Systems
An accounting system consists of the personnel, procedures, technology, and records used by an organization to develop accounting information and to communicate this information to decision makers.

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Information System

Information Users Investors Creditors Managers Owners Customers Employees Regulators -SEC -IRS -FTC

Financial Information Provided Profitability Financial position Cash flows

Decisions Supported Performance evaluations Stock investments Tax strategies Labor relations Resource allocations Lending decisions Borrowing
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Determining Information Needs

Although much accounting information clearly is essential to business operations, management still has many choices as to the types and amount of accounting information to be developed.
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Basic Functions of an Accounting System

Interpret and record business transactions. Classify similar transactions into useful reports. Summarize and communicate information to decision makers.
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Components of Internal Control

Control Environment Risk Assessment Control Activities Information and Communication Monitoring
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External Users of Accounting Information

Owners Creditors Potential investors Labor unions Governmental agencies Suppliers Customers Trade associations General public

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Objectives of External Financial Reporting

Provide specific 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 general information useful in making investment and credit decisions.

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Objectives of External Financial Reporting

The primary financial statements.
Balance Sheet Income Statement

Statement of Cash Flows

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Characteristics of Externally Reported Information

A Means to an End

Usefulness Enhanced via Explanation

Broader than Financial Statements

Based on GeneralPurpose Assumption Results from Inexact and Approximate Measures

Historical in Nature

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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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Owners Board of Directors

Chief Executive Officer (CEO)

Typical Simple Organization Chart

V.P. Information Services Chief Financial Officer (CFO)

V.P Ethics

Business Unit Managers

V.P. Human Resources

Plant Managers

Plant Managers

Controller

Treasurer

Plant Accountants

Plant Accountants
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Objectives of Management Accounting Information

To help achieve goals and missions To help evaluate and reward decision makers

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Characteristics of Management Accounting Information

Timeliness
A Means to an End Identify Decision Maker

Measures of Efficiency and Effectiveness

Oriented Toward Future

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Institutional Features
Generally Accepted Accounting Principles (GAAP) Financial Accounting Standards Board International Accounting Standards Board Securities and Exchange Commission Public Company Accounting Oversight Board Audits of Financial Statements Legislation

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Professional Organizations
American Institute of Certified Public Accountants Institute of Management Accountants Institute of Internal Auditors American Accounting Association Committee of Sponsoring Organizations of the Treadway Commission (COSO)

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Competence, Judgment and Ethical Behavior

Certified Public Accountant (CPA) Certified Management Accountant (CMA) Certified Internal Auditor (CIA)

Ethical behavior is the cornerstone of the accounting profession.

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Careers in Accounting
Public Accounting Management Accounting Governmental Accounting Accounting Education

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What About Bookkeeping?

Bookkeeping is the clerical side of accounting the recording of routine transactions and day-today record keeping.

Professional accountants are involved more with the interpretation and use of accounting information than with its actual preparation.
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Im Not An Accounting Major

Accounting is the language of business, and trying to run a business without understanding accounting information is analogous to trying to play sports without understanding the rules.

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Ethics, Fraud & Corporate Governance

Corporate governance entails corporate structures and processes for overseeing the companys affairs to ensure that the company is being managed with the best interests of shareholders in mind.
Dennis Kozlowski, the former CEO of Tyco, was sentenced to 8 1/3 to 25 years in prison for his conviction for conspiracy, securities fraud, and falsifying records.
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End of Chapter 1

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