Financial & Managerial Financial & Managerial Accounting Accounting

The Basis for Business Decisions

TWELFTH EDITION

Williams

Haka

Bettner

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Meigs

Chapter

ACCOUNTING:
Information for Decision Making

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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

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Types of Accounting Information Types of Accounting Information

Financial

Tax

Managerial

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Information System Information System

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

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

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

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Basic Functions of an Accounting Basic Functions of an Accounting System System

Interpret and record business transactions.
Payment

Car

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Basic Functions of an Accounting Basic Functions of an Accounting System System

Interpret and record business transactions. Classify similar transactions into useful reports.

Summarize and communicate information to decision makers.

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Objectives of External Financial Objectives of External Financial Reporting Reporting

The primary external users of financial information are The primary external users of financial information are investors and creditors. investors and creditors.

Cash Flow Prospects Investors Creditors Return on Periodic Periodic Investment dividends interest Sale of Repayment of Return of ownership at a loan at a Investment future date future date

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(Specific)

Information about economic resources, claims to resources, and changes in resources and claims.

Objectives of Financial Reporting

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

Information useful in making investment and credit decisions.

(General)

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Objectives of External Financial Objectives of External Financial Reporting Reporting

Balance Sheet Income Statement
Statement of Cash Flows

The primary financial statements.

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Financial Statements: Financial Statements: A Lens to View Business A Lens to View Business

ting por e lR a nci a Fin

Financial Statements
Fin anc ial R epo rtin g

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Characteristics of Externally Characteristics of Externally Reported Information Reported Information

Usefulness Usefulness Enhanced via Enhanced via Explanation Explanation Based on Based on General Purpose General Purpose Assumption Assumption Results from Inexact and Results from Inexact and Approximate Measures Approximate Measures A Means to an A Means to an End End Broader than Broader than Financial Financial Statements Statements

Historical in Historical in Nature Nature

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Internal Users of Accounting Internal Users of Accounting Information Information

Board of Directors Chief Executive Officer Chief Financial Officer Vice Presidents Business Unit Managers Plant Managers Store Managers Line Supervisors

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y p i c a l

i m

l e

r g

a n

i z a

B o a r d o f D i r e c t o r s ( O w n e r s ) C h i e f E x e c u t i v e O f f i c e r ( C E O )

u s i n e s s U .n P i .t H u m V a . P . I n f o r m C a h t ii eo f n F i n V n M a n a g e r R e s o u r c e sS e r v i c e s O f f i c e r (

l a n t P l a n t a n a g eMr a n a g e r

P l a n t P l a n t c c o u n At a c n c t o u n t a n t

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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.

Objectives of Managerial Reporting

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

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Characteristics of Management Characteristics of Management Accounting Information Accounting Information

Timeliness Timeliness A Means to an A Means to an End End Identify Identify DecisionDecisionMaking Making Authority Authority Oriented Oriented Toward Toward Future Future

Measures of Measures of Efficiency and Efficiency and Effectiveness Effectiveness

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Integrity of Accounting Information Integrity of Accounting Information

Institutional Features Generally Accepted Accounting Principles (GAAP) Financial Accounting Standards Board Securities and Exchange Commission Internal Control Structure Audits

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Integrity of Accounting Information Integrity of Accounting Information

Professional Organizations American Institute of Certified Public Accountants Institute of Management Accountants Institute of Internal Auditors American Accounting Association

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Integrity of Accounting Information Integrity of Accounting Information

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

CP A

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End of Chapter 1 End of Chapter 1

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