PowerPoint Authors:Susan Coomer Galbreath, Ph.D., CPACharles W. Caldwell, D.B.A., CMAJon A. Booker, Ph.D., CPA, CIACynthia J. Rooney, Ph.D., CPA
McGraw-Hill/Irwin
The Basis for Business DecisionsThe Basis for Business DecisionsSixteenth Edition
Williams Haka Bettner Carcello
Copyright © 2012 The McGraw-Hill Companies, Inc.
PowerPoint Authors:Susan Coomer Galbreath, Ph.D., CPACharles W. Caldwell, D.B.A., CMAJon A. Booker, Ph.D., CPA, CIACynthia J. Rooney, Ph.D., CPA
McGraw-Hill/Irwin
AccountingAccountingInformation for Decision MakingInformation for Decision Making
Chapter 1
1-3
AccountingInformation
The Accounting
Process
Decision Makers
Economic Activities
Actions (decisions)
Accounting links decision makers with economic activities and
with the results of their decisions.
Reported Results of
Actions (decisions)
1-4
Types of Accounting Types of Accounting InformationInformation
Financial
Management
Tax
1-5
Accounting SystemsAccounting SystemsAn 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.
1-6
Information Users
InvestorsCreditors ManagersOwnersCustomersEmployeesRegulators -SEC -IRS -FTC
Information Users
InvestorsCreditors ManagersOwnersCustomersEmployeesRegulators -SEC -IRS -FTC
Decisions Supported
Performance evaluationsStock investmentsTax strategiesLabor relationsResource allocationsLending decisionsBorrowing
Decisions Supported
Performance evaluationsStock investmentsTax strategiesLabor relationsResource allocationsLending decisionsBorrowing
Information SystemInformation System
Financial Information
ProvidedProfitabilityFinancial positionCash flows
Financial Information
ProvidedProfitabilityFinancial positionCash flows
1-7
Although much accounting information clearly is essential to business operations, management still has many choices as to
the types and amount of accounting information to be developed.
Determining Information Determining Information NeedsNeeds
1-8
Basic Functions of an Basic Functions of an Accounting SystemAccounting System
Summarize and
communicate information to
decision makers.
Classify similar
transactions into useful
reports.
Interpret and record business
transactions.
1-9
Components of Internal Components of Internal ControlControl
Control Environment
Risk Assessment
Control Activities
Information and Communication
Monitoring
1-10
External Users of External Users of Accounting InformationAccounting Information
•Owners•Creditors•Potential investors•Labor unions•Governmental agencies•Suppliers•Customers•Trade associations•General public
1-11
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.
Objectives of External Objectives of External Financial ReportingFinancial Reporting
1-12
Objectives of External Objectives of External Financial ReportingFinancial Reporting
The primary financial statements.
Balance Sheet
Statement of Cash Flows
Income Statement
1-13
Characteristics of Characteristics of Externally Reported Externally Reported InformationInformation
A Means to an End
A Means to an End
Broader than Financial
Statements
Broader than Financial
Statements
Historical in Nature
Historical in Nature
Results from Inexact and Approximate Measures
Results from Inexact and Approximate Measures
Based on General-Purpose
Assumption
Based on General-Purpose
Assumption
Usefulness Enhanced via Explanation
Usefulness Enhanced via Explanation
1-14
Users of Internal Users of Internal Accounting InformationAccounting InformationBoard of directorsChief executive officer (CEO)Chief financial officer (CFO)Vice presidentsBusiness unit managersPlant managersStore managersLine supervisors
1-15
Typical Simple
Organization Chart
PlantAccountants
PlantManagers
PlantAccountants
PlantManagers
Business Unit
Managers
V.P. Human
Resources
V.P. Information
Services
Chief Financial
Officer (CFO)
Chief ExecutiveOfficer(CEO)
Board ofDirectors
Owners
V.PEthics
Controller Treasurer
1-16
Objectives of Objectives of Management Accounting Management Accounting InformationInformation
To help achieve goals and missions
To help achieve goals and missions
To help evaluate and reward
decision makers
To help evaluate and reward
decision makers
1-17
Characteristics of Characteristics of Management Accounting Management Accounting InformationInformation
TimelinessTimeliness
Identify Decision Maker
Identify Decision Maker
Oriented Toward Future
Oriented Toward Future
Measures of Efficiency and Effectiveness
Measures of Efficiency and Effectiveness
A Means to an End
A Means to an End
1-18
Institutional FeaturesInstitutional Features
Generally Accepted Accounting Principles (GAAP)Financial Accounting Standards BoardInternational Accounting Standards BoardSecurities and Exchange CommissionPublic Company Accounting Oversight BoardAudits of Financial StatementsLegislation
1-19
Professional OrganizationsProfessional Organizations
American Institute of Certified Public Accountants Institute of Management AccountantsInstitute of Internal AuditorsAmerican Accounting AssociationCommittee of Sponsoring Organizations of the Treadway Commission (COSO)
1-20
Competence, Judgment Competence, Judgment and Ethical Behaviorand Ethical Behavior
Certified Public Accountant (CPA)Certified Management Accountant (CMA)Certified Internal Auditor (CIA)
Ethical behavior is the cornerstone of the
accounting profession.
1-21
Careers in AccountingCareers in Accounting
Public AccountingManagement AccountingGovernmental AccountingAccounting Education
1-22
What About Bookkeeping?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.
1-23
I’m Not An Accounting I’m Not An Accounting MajorMajorAccounting 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.
1-24
Ethics, Fraud & Corporate Ethics, Fraud & Corporate GovernanceGovernance
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.
1-25
End of Chapter 1End of Chapter 1