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
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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
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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)
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makers
( )
T f A ti I f ti Types of Accounting Information
Financial Tax
Financial Tax
Managerial
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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
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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.
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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
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Borrowing
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.
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C t f I t l C t l
Components of Internal Control
Control Environment
Risk Assessment
Control Activities
Information and Communication Communication
Monitoring
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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
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External Users of Accounting
1-12I f ti Information
•Owners C dit
•Creditors
•Potential investors
•Labor unions
•Governmental agencies
•Suppliers
•Suppliers
•Customers
•Trade associations
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•General public
(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.
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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.
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Characteristics of Externally
1-15R 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
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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
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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
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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
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Accountants Accountants
Objectives of Management
1-19A ti I f ti
Accounting Information
To help achieve goals and missions g
To help evaluate and reward and reward decision makers
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Characteristics of Management
1-20A ti I f ti
Accounting Information
Timeliness
Identify Decision A Means to
Maker an End
Oriented Toward Measures of
Efficiency and
Future Effectiveness
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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
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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
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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
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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)
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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
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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)
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1-27
L i Obj ti
Learning Objective
To discuss various career opportunities in
accounting.g
LO8
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1-28
C i A ti
Careers in Accounting
Public AccountingPublic Accounting
Management Accounting
Governmental Accounting
Accounting EducationAccounting Education
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E d f Ch t 1 End of Chapter 1
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