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