Financial & Managerial
Accounting
The Basis for Business Decisions
Williams Haka Bettner Meigs
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Chapter
1 ACCOUNTING:
Information for Decision Making
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The
accounting
process
Accounting
“links” decision
makers with Accounting
Economic
economic
activities information
activities and
with the results of
their decisions.
Actions
(decisions) Decision
makers
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Types of Accounting
Information
Financial Tax
Managerial
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Information
Information System
System
Cost
Cost&&Revenue
Revenue
Determination
Determination
Information Job
Jobcosting Decision
Information costing DecisionSupport
Support
Users Process
Processcosting CVP
Users costing CVPanalysis
analysis
Investors ABC
ABC Performance
Investors Performance
Creditors Sales
Sales evaluation
Creditors evaluation
Managers Assets Incremental
Managers Assets&& Incremental
Owners
Owners Liabilities analysis
analysis
Liabilities
Customers
Customers Plant Budgeting
Budgeting
Employees Plantand
and Capital
Employees equipment
equipment Capital
Regulatory
Regulatory Loans allocation
allocation
agencies Loans&&equity
equity Earnings
agencies Receivables,
Receivables, Earningsper
per
payables share
share
payables&&cash
cash Ratio
Cash Ratioanalysis
analysis
CashFlows
Flows
From
Fromoperations
operations
From
Fromfinancing
financing
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From
Frominvesting
investing © The McGraw-Hill Companies, Inc., 20
Basic Functions of an
Accounting System
Interpret
and record
business
transactions.
Payment
Car
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Basic Functions of an
Accounting System
Interpret Classify
and record similar
business transactions
transactions. into useful Summarize
reports. and
communicate
information to
decision
makers.
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Objectives of External
Financial Reporting
The
Theprimary
primaryexternal
external users
usersof
offinancial
financial information
informationare
are
investors
investorsand
and creditors.
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
Objectives
resources, claims to resources, and
changes in resources and claims. 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 Reporting
Balance Sheet
Income Statement
The primary
Statement of Cash Flows
financial
statements.
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Financial
Financial Statements:
Statements:
AALens
Lensto
toView
View Business
Business i ng
o rt
ep
al R
nci
a
Fin
Financial
Statements
Fin
anc
ial R
epo
rt i ng
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Characteristics of
Externally Reported
AAMeans
Meanstoto
Information an
anEnd
End
Usefulness
Usefulness Broader
Broaderthan
than
Enhanced
Enhancedviavia Financial
Financial
Explanation
Explanation Statements
Statements
Based
Basedonon Historical
Historical in
in
General
General Purpose
Purpose Nature
Nature
Assumption
Assumption
Results
Resultsfrom
fromInexact
Inexactand
and
Approximate
ApproximateMeasures
Measures
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Internal Users of Accounting
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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T yp ical S im p le O rg an izatio n C h art
Board of
Directors
(Owners)
Chief Executive
Officer
(CEO)
Business Unit V.P. Human V.P. Information Chief Financial
Manager Resources Services Officer (CFO)
Plant Plant
Manager Manager
Plant Plant
Accountant Accountant
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Information about decision-making
authority, for decision-making support, and Objectives
for evaluating and rewarding decision-making of
performance.
Managerial
Reporting
Information useful in assessing
both the past performance and future
directions of the enterprise and information
from external and internal sources.
Information useful to help the enterprise
achieve its goal, objectives and mission.
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Characteristics of
Management Accounting
Information
Timeliness
Timeliness
Identify
Identify
AAMeans
Meanstoto Decision-
Decision-
an
anEnd
End Making
Making
Authority
Authority
Measures
Measuresof of Oriented
Oriented
Efficiency
Efficiencyand
and Toward
Toward
Effectiveness
Effectiveness Future
Future
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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
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
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
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