Accounting Information for Decision Making. Accounting. Financial & Managerial. accounting. The Basis for Business Decisions. Learning Objective LO1

Full text

(1)

Financial & Managerial Accounting

The Basis for Business Decisions

FOURTEENTH EDITION

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin

Williams Haka Bettner Carcello

Chapterp

1

Accounting

1

Accounting

Information for Decision Making

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin

1-3

L i Obj ti

Learning Objective

To discuss accounting g as the language of business and the role of business and the role of

accounting information in making economic in making economic

decisions.

LO1

© The McGraw-Hill Companies, Inc., 2008

1-4

The accounting accounting

process

Accounting Accounting

“links” decision

makers with Accounting

information Economic

activities

makers with economic

information activities

activities  and with the results of

their decisions.

Decision

Actions (decisions)

© The McGraw-Hill Companies, Inc., 2008

makers

( )

(2)

T f A ti I f ti Types of Accounting Information

Financial Tax

Financial Tax

Managerial

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin

L i Obj ti

Learning Objective

To discuss the significance of To discuss the significance of accounting systems in generating

reliable accounting information, e ab e accou t g o at o , and understand the five components of internal control

per COSO’s Internal Control—

Integrated Framework.

LO2

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin

1-7

A ti S t

Accounting Systems

An accounting system consists of the personnel, procedures, technology, and records used by an

p , gy, y

organization to develop accounting information and to communicate this information to decision and to communicate this information to decision

makers.

© The McGraw-Hill Companies, Inc., 2008

1-8

Information System Information System

Information Users

Decisions Supported Financial

Information

Investors

Creditors

Managers

Performance evaluations

Stock Provided

Profitability

Financial Managers

Owners

Customers

Stock investments

Tax strategies

Financial position

Cash flows

Employees

Regulators -SEC

Labor relations

Resource allocations SEC

-IRS -FTC

allocations

Lending decisions

© The McGraw-Hill Companies, Inc., 2008

Borrowing

(3)

S t System

 Classify

 Interpret

d d similar

transactions and record

business

 Summarize and

into useful reports.

transactions.

communicate information to reports.

information to decision

makers makers.

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin

C t f I t l C t l

Components of Internal Control

Control Environment

Risk Assessment

Control Activities

Information and Communication Communication

Monitoring

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin

Monitoring

1-11

L i Obj ti

Learning Objective

To explain the importance of financial accounting of financial accounting information for external

parties—primarily parties—primarily investors and creditors—

in terms of the objectives in terms of the objectives and the characteristics of

that information.

that information.

LO3

© The McGraw-Hill Companies, Inc., 2008

External Users of Accounting

1-12

I f ti Information

•Owners C dit

•Creditors

•Potential investors

•Labor unions

•Governmental agencies

•Suppliers

•Suppliers

•Customers

•Trade associations

© The McGraw-Hill Companies, Inc., 2008

•General public

(4)

(Specific)

Provide information about economic

resources, claims to resources, and

Objectives

resources, claims to resources, and

of

changes in resources and claims.

of External

Provide information useful in

Financial

R ti

Provide information useful in assessing amount, timing and uncertainty of future cash flows

Reporting

uncertainty of future cash flows.

P id i f ti f l i ki

Provide information useful in making investment and credit decisions.

© The McGraw-Hill Companies, Inc., 2008

McGraw-Hill/Irwin (General)

Objectives of External Financial

R ti

Reporting

Balance Sheet

Th i

Income Statement

The primary financial

Statement of Cash Flows

financial statements.

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin

Characteristics of Externally

1-15

R t d I f ti Reported Information

A Means to an End

Broader than Financial Usefulness

Enhanced via

Statements Explanation

Historical in Based on

Historical in Nature General-Purpose

Assumption

Results from Inexact and

© The McGraw-Hill Companies, Inc., 2008

Approximate Measures

1-16

L i Obj ti

Learning Objective

To explain the importance of financial accounting of financial accounting information for internal

parties—primarily parties—primarily management—in terms of

the objectives and the the objectives and the characteristics of that

information.

information.

LO4

© The McGraw-Hill Companies, Inc., 2008

(5)

I f ti Information

Board of directors

Chief executive officer (CEO)

Chief financial officer (CFO)

Vice presidents

Business unit managers

Plant managers

Store managers

Line supervisorsp

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin

Typical Typical Simple O

Board of Directors

Organization Chart

Chief Executive

Chart

Officer (CEO)

Business Unit

V.P.

Human

V.P.

Information

Chief Financial

V.P Unit

Managers

Human Resources

Information Services

Financial Officer (CFO) Ethics

Plant Managers

Plant

Managers Controller Treasurer

Plant Plant

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin

Accountants Accountants

Objectives of Management

1-19

A ti I f ti

Accounting Information

To help achieve goals and missions g

To help evaluate and reward and reward decision makers

© The McGraw-Hill Companies, Inc., 2008

Characteristics of Management

1-20

A ti I f ti

Accounting Information

Timeliness

Identify Decision A Means to

Maker an End

Oriented Toward Measures of

Efficiency and

Future Effectiveness

© The McGraw-Hill Companies, Inc., 2008

(6)

L i Obj ti Learning Objective

To discuss elements of the system of external

and internal financial and internal financial

reporting that create integrity in the reported integrity in the reported

information.

LO5

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin

I t it f A ti I f ti

Integrity of Accounting Information

Institutional Features

G ll A t d A ti P i i l (GAAP)

Generally Accepted Accounting Principles (GAAP)

Financial Accounting Standards Boardg

International Accounting Standards Board

S iti d E h C i i

Securities and Exchange Commission

Public Company Accounting Oversight Boardp y g g

Audits of Financial Statements L i l ti

Legislation

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin

1-23

L i Obj ti

Learning Objective

To identify and discuss

l f i l

several professional organizations that play

important roles in preparing and

p p g

communicating accounting information accounting information.

LO6

© The McGraw-Hill Companies, Inc., 2008

1-24

I t it f A ti I f ti

Integrity of Accounting Information

Professional Organizations

A i I tit t f C tifi d P bli A t t

American Institute of Certified Public Accountants

Institute of Management Accountantsg

Institute of Internal Auditors

A i A ti A i ti

American Accounting Association

Committee of Sponsoring Organizations of the p g g Treadway Commission (COSO)

© The McGraw-Hill Companies, Inc., 2008

(7)

L i Obj ti Learning Objective

To discuss the

i t f l

importance of personal competence, professional judgment, and ethical behavior on

the part of accounting professionals professionals.

LO7

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin

I t it f A ti I f ti

Integrity of Accounting Information

Competence, Judgment and Ethical Behavior C tifi d P bli A t t (CPA )

Certified Public Accountants (CPAs)

Certificate in Management Accounting (CMA)g g ( )

Certificate in Internal Auditing (CIA)

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin

1-27

L i Obj ti

Learning Objective

To discuss various career opportunities in

accounting.g

LO8

© The McGraw-Hill Companies, Inc., 2008

1-28

C i A ti

Careers in Accounting

Public AccountingPublic Accounting

Management Accounting

Governmental Accounting

Accounting EducationAccounting Education

© The McGraw-Hill Companies, Inc., 2008

(8)

E d f Ch t 1 End of Chapter 1

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin

Figure

Updating...

References

Updating...