Accounting:

Information for Decision Making

Lecture # 1
 The
Accounting
Process

Accounting links
decision makers
with economic Accounting
Economic activities  and Information
Activities
with the results of
their decisions.

Reported
Decision Results of
Actions Actions
(decisions)
Makers (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 Financial Decisions

Users Information Supported
Investors Provided Performance
Creditors Profitability evaluations
Managers Financial Stock
Owners position investments
Customers Cash flows Tax strategies
Employees Labor relations
Regulators Resource
-SEC allocations
-IRS Lending
-FTC decisions
Borrowing
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 Basic Functions of an Accounting
System
 Interpret  Classify
and record similar
business transactions
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 Income
Sheet Statement

Statement
of Cash
Flows
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 Characteristics of Externally
Reported Information
A Means to an
End
Usefulness Broader than
Enhanced via Financial
Explanation Statements

Based on General-
Purpose Historical in
Assumption Nature

Results from Inexact and

Approximate Measures
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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

Typical
Board of
Directors Simple
Organization
Chief Executive
Officer Chart
(CEO)

Business V.P. V.P. Chief

V.P
Unit Human Information Financial
Ethics
Managers Resources Services Officer (CFO)

Plant Plant
Managers Managers Controller Treasurer

Plant Plant
Accountants 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
Identify
A Means to an Decision Maker
End

Measures of Oriented Toward

Efficiency and Future
Effectiveness

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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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 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-to-
day record keeping.

Professional accountants are involved more with

the interpretation and use of accounting
information than with its actual preparation.
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I’m 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 company’s 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 Lecture 1

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