© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin 1-1 Financial & Managerial Accounting The Basis for Business Decisions THIRTEENTH EDITION Williams Haka Bettner

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin 1-2 ACCOUNTING: INFORMATION FOR DECISION MAKING Chapter 1

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin 1-3 Accounting information The accounting process Decision makers Economic activities Actions (decisions) Accounting “links” decision makers with economic activities  and with the results of their decisions.

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin 1-4 Types of Accounting Information Financial Managerial Tax

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin 1-5 Information Users  Investors  Creditors  Managers  Owners  Customers  Employees  Regulators -SEC -IRS -EPA Information Users  Investors  Creditors  Managers  Owners  Customers  Employees  Regulators -SEC -IRS -EPA Decisions Supported  Performance evaluations  Stock investments  Tax strategies  Labor relations  Resource allocations  Lending decisions  Borrowing Decisions Supported  Performance evaluations  Stock investments  Tax strategies  Labor relations  Resource allocations  Lending decisions  Borrowing Information System Financial Information Provided  Profitability  Financial position  Cash flows Financial Information Provided  Profitability  Financial position  Cash flows

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin 1-6 Basic Functions of an Accounting System  Interpret and record business transactions. Payment Car

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin 1-7 Basic Functions of an Accounting System  Summarize and communicate information to decision makers.  Classify similar transactions into useful reports.  Interpret and record business transactions.

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin 1-8 External Users of Accounting Information Owners Creditors Labor unions Governmental agencies Suppliers Customers Trade associations General public

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin 1-9 Provide 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 information useful in making investment and credit decisions. (Specific) (General) Objectives of Financial Reporting

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin 1-10 Objectives of External Financial Reporting The primary financial statements. Income Statement Balance Sheet Statement of Cash Flows

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin 1-11 Characteristics of Externally Reported Information A Means to an End Broader than Financial Statements Historical in Nature Results from Inexact and Approximate Measures Based on General-Purpose Assumption Usefulness Enhanced via Explanation

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin 1-12 Users of Internal Accounting Information Board of directors Chief executive officer (CEO) Chief financial officer (CFO) Vice presidents Business unit managers Plant managers Store managers Line supervisors

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin 1-13

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin 1-14 Objectives of Management Accounting Information To help achieve goals and missions To help evaluate and reward decision makers

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin 1-15 Characteristics of Management Accounting Information Timeliness Identify Decision Maker Oriented Toward Future Measures of Efficiency and Effectiveness A Means to an End

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin 1-16 Integrity of Accounting Information Institutional Features  Generally Accepted Accounting Principles (GAAP)  Financial Accounting Standards Board  Securities and Exchange Commission  Internal Control Structure  Audits  Legislation

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin 1-17 Integrity of Accounting Information Professional Organizations  American Institute of Certified Public Accountants  Institute of Management Accountants  Institute of Internal Auditors  American Accounting Association

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin 1-18 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 CPA

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin 1-19 Integrity of Accounting Information Careers in Accounting  Public Accounting  Management Accounting  Governmental Accounting  Accounting Education

© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin 1-20 End of Chapter 1