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01 Basics of financial decision.pptx

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Umar Altaf

Accounting provides information for decision making. There are three main types of accounting: financial, managerial, and tax accounting. Financial accounting provides information on a company's financial resources and activities. Managerial accounting assists management in operating the business through budgeting, performance evaluation, and other decisions. Tax accounting prepares tax returns based on financial information but adjusted for tax requirements. Accounting information supports both external users like investors and creditors as well as internal users like managers. It aims to objectively represent a company's transactions and financial status.

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ACCOUNTING: Information for Decision Making
i n Accounting formation The accounting process Decision makers Economic activities Actions (decisions) Accounting “links” decision makers with economic activities and with the results of their decisions.
Types of Accounting Information Financial Managerial Tax
Financial Accounting Financial accounting refers to information describing the financial resources, obligations, and activities of an economic entity (either an organization or an individual). Accountants use the term financial position to describe an entity’s financial resources and obligations at a point in time and the term results of operations to describe its financial activities during the year.
01 Basics of financial decision.pptx
Management Accounting Management (or managerial) accounting involves the development and interpretation of accounting information intended specifically to assist management in operating the business. Managers use this information in setting the company’s overall goals, evaluating the performance of departments and individuals, deciding whether to introduce a new line of products, and making virtually all types of managerial decisions.
company’s managers and employees constantly need information to run and control daily business operations. For example, they need to know the amount of money in the company’s bank accounts; the types, quantities, and dollar amounts of merchandise in the company’s warehouse; and the amounts owed to specific creditors. Much management accounting information is financial in nature but is organized in a manner relating directly to the decision at hand.
Tax Accounting The preparation of income tax returns is a specialized field within accounting. To a great extent, tax returns are based on financial accounting information. However, the information often is adjusted or reorganized to conform with income tax reporting requirements.
Information Users Investors Creditors Managers Customers Employees Regulatory agencies -SECP -FBR Decision Support Performance evaluation Budgeting Capital allocation Earnings per share Information System Cost & Revenue Determination Job costing Process costing Sales Assets & Liabilities Plantand equipment Loans& equity Receivables, payables & cash Fromoperations Fromfinancing Frominvesting Cash Flows
Basic Functions of an Accounting System Interpret and record business transactions. Payment Car
Basic Functions of an Accounting System Summarize and communicate information to decision makers. Classify similar transactions into useful reports. Interpret and record business transactions.
Objectives of External Financial Reporting Cash Flow Prospects Investors Creditors Return on Investment Periodic dividends Periodic interest Return of Investment Sale of ownership at a future date Repayment of loan at a future date The primary external users of financial information are investors and creditors.
Information about economic resources, claims to resources, and changes in resources and claims. Information useful in assessing amount, timing and uncertainty of future cash flows. (Specific) Information useful in making investment and credit decisions. (General) Objectives of Financial Reporting
Objectives of External Financial Reporting The primary financial statements. Income Statement Balance Sheet Statement of Cash Flows
Financial Statements Financial Statements: A Lens to View Business
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
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., Typical Simple Organization Chart Plant Accountant Plant Manager Plant Accountant Plant Manager Business Unit Manager V.P.Human Resources V.P.Information Services Chief Financial Officer(CFO) Board of Directors( Owners) ChiefExecutive Officer (CEO)
Information about decision-making authority, for decision-making support, and for evaluating and rewarding decision-making performance. 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. Objectives of Managerial Reporting
Characteristics of Management Accounting Information Timeliness Identify Decision- Making Authority Oriented Toward Future Measures of Efficiency and Effectiveness A Means to an End
Integrity of Accounting Information Institutional Features Generally Accepted Accounting Principles (GAAP) Financial Accounting Standards Board Securities and Exchange Commission Internal Control Structure Audits
End of the Chapter

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01 Basics of financial decision.pptx

  • 3. Types of Accounting Information Financial Managerial Tax
  • 4. Financial Accounting Financial accounting refers to information describing the financial resources, obligations, and activities of an economic entity (either an organization or an individual). Accountants use the term financial position to describe an entity’s financial resources and obligations at a point in time and the term results of operations to describe its financial activities during the year.
  • 6. Management Accounting Management (or managerial) accounting involves the development and interpretation of accounting information intended specifically to assist management in operating the business. Managers use this information in setting the company’s overall goals, evaluating the performance of departments and individuals, deciding whether to introduce a new line of products, and making virtually all types of managerial decisions.
  • 7. company’s managers and employees constantly need information to run and control daily business operations. For example, they need to know the amount of money in the company’s bank accounts; the types, quantities, and dollar amounts of merchandise in the company’s warehouse; and the amounts owed to specific creditors. Much management accounting information is financial in nature but is organized in a manner relating directly to the decision at hand.
  • 8. Tax Accounting The preparation of income tax returns is a specialized field within accounting. To a great extent, tax returns are based on financial accounting information. However, the information often is adjusted or reorganized to conform with income tax reporting requirements.
  • 9. Information Users Investors Creditors Managers Customers Employees Regulatory agencies -SECP -FBR Decision Support Performance evaluation Budgeting Capital allocation Earnings per share Information System Cost & Revenue Determination Job costing Process costing Sales Assets & Liabilities Plantand equipment Loans& equity Receivables, payables & cash Fromoperations Fromfinancing Frominvesting Cash Flows
  • 10. Basic Functions of an Accounting System Interpret and record business transactions. Payment Car
  • 11. Basic Functions of an Accounting System Summarize and communicate information to decision makers. Classify similar transactions into useful reports. Interpret and record business transactions.
  • 12. Objectives of External Financial Reporting Cash Flow Prospects Investors Creditors Return on Investment Periodic dividends Periodic interest Return of Investment Sale of ownership at a future date Repayment of loan at a future date The primary external users of financial information are investors and creditors.
  • 13. Information about economic resources, claims to resources, and changes in resources and claims. Information useful in assessing amount, timing and uncertainty of future cash flows. (Specific) Information useful in making investment and credit decisions. (General) Objectives of Financial Reporting
  • 14. Objectives of External Financial Reporting The primary financial statements. Income Statement Balance Sheet Statement of Cash Flows
  • 16. 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
  • 17. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., Typical Simple Organization Chart Plant Accountant Plant Manager Plant Accountant Plant Manager Business Unit Manager V.P.Human Resources V.P.Information Services Chief Financial Officer(CFO) Board of Directors( Owners) ChiefExecutive Officer (CEO)
  • 18. Information about decision-making authority, for decision-making support, and for evaluating and rewarding decision-making performance. 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. Objectives of Managerial Reporting
  • 19. Characteristics of Management Accounting Information Timeliness Identify Decision- Making Authority Oriented Toward Future Measures of Efficiency and Effectiveness A Means to an End
  • 20. Integrity of Accounting Information Institutional Features Generally Accepted Accounting Principles (GAAP) Financial Accounting Standards Board Securities and Exchange Commission Internal Control Structure Audits
  • 21. End of the Chapter