Accounting for Management Decisions DBA10AMD

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Accounting for Management Decisions(DBA10AMD)

• Greg Ellis
• Room 12.05 (same room as English teachers)
• Ph ???

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University learning

• Education is not a normal good that can be
  simply purchased, like a mobile phone
• You have pay and then earn it as well!
• New skills required to learn
• Self analysis become aware of own
  strengths/weaknesses (eg time management)
• Networking skills, contact with other students
• My job is to provide the tools (rules, analytical
  skills, etc)
• Your job is to learn it sufficiently (put it all
  together and pass)
• You are responsible for your own learning

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Accounting for Management Decisions

• (DBA10AMD)
• Week 1
• INTRODUCTION TO ACCOUNTING
• READING Text CHAPTER 1

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Learning Objectives

• Define accounting
• Discuss the role of accounting information
• List the main accounting information user groups
  for a business entity
• Summarise the uses of accounting information
• Explain the procedures within the accounting
  information system
• State the key characteristics of accounting
  information

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Learning Objectives contd

• Discuss the recent crisis in accounting
• Relate the steps in the planning process
• Discuss the nature of control in the
  decision-making process
• List some alternative business objectives
• Compare and contrast financial and management
  accounting
• Provide an overview of the main financial reports

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Why Study Accounting?

• Accounting is the
• Anyone involved in the economic activities of our
  society needs to know enough of this language to
  be able to make and
• about
  those activities.
• If you want to be long-term, it
  could be the most important subject.
• - Robert Kiyosaki author of Rich Dad, Poor Dad

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Nature and Role of Accounting

• Learning Objective Define accounting
• Accounting is concerned with the
  ,
• 
  of economic information
• Accounting information is to those
  who need to make and
  about businesses, and for those people who
  businesses.

Analysis economic information
Collection identifying measuring
Communication for decisions and informed
judgements
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Nature and Role of Accounting
Learning Objective Discuss the role of
accounting information

• The more
  traditional role of providing accountability
  reports of transactions for a given period (
  to owners)
• Is about
  assisting users with making informed choices
  about issues
• eg resource allocation

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Accounting information groups
Figure 1.1
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Users and uses of accounting information
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Accounting as an information system
Learning Objective Explain the different
procedures involved in the accounting information
system

• Identify and capture
  economic information
• the information collected
  in a systematic manner
• Analyse and information
  collected
• Report the information in a manner suitable to
  the needs of

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Accounting as an information system contd
Figure 1.2
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Accounting as a service function
Learning Objective State the key characteristics
of accounting information

• (the ability to influence
  decisions)
• (free from material error
  or bias)
• (consistency of
  measurement and presentation of items)
• (clarity
  and readability of presentation)
• of information (is the benefit
  worth the cost?)

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Characteristics of accounting information
Figure 1.3
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Accounting in crisis
Learning Objective Discuss the recent crisis in
accounting

• Enron and HIH are cases of recent notoriety
• HIH collapse caused of up to US5.3b
• Resultant inquiry led to accusations of
• accounting
  practices
• of financial
  reports has been damaged
• Tighter controls on the of
  financial information have been introduced

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Decision-making, planning and control

• Planning is for business
  success
• Prudent is closely
  linked to effective planning
• Planning covers both and
• scenarios
• Over time, plans are normally adapted to
• circumstances
• Accounting with business planning

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Decision-making, planning control contd
Learning objective Relate steps in planning
process

• Planning is usually broken down into
  
• Setting or mission of the
  business
• (Detailing what the business is basically trying
  to achieve)
• Setting plans
• (Describing how the business will set out to
  achieve its long-term objectives)
• Setting detailed plans or
  
• (Typically financial plans for year
  ahead)

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Decision-making, planning control contd

• Learning Objective Discuss the nature of control
  in the decision-making process
• Control is the of making planned
  events actually occur
• Accounting is useful in to
  compare
• outcomes with
  outcomes in commonly specified terms
• Managers can take steps to get the business back
  on its proper course if
• are between
  planned and actual outcomes

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Overview of the planning and control process
Figure 1.4
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Business Objectives

• Learning Objective Explain the different
  procedures involved in the accounting information
  system.
• The popular suggested business objectives
  include
• Maximisation of (this
  does
• consider the need to cover business
  costs)
• Maximisation of (this takes in to
  account sales revenues as well as expenses, but
  is limited as it does not include
• such as )

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Business Objectives contd

• Maximisation of
  employed (accounts for level of profit as well as
  the level of investment)
• (This is the aim of most
  businesses, however it is a
  objective)
• (Like
  survival, most businesses aim for it
  a primary objective)
• (Encompasses survival and
  long-term stability and aims to strike a balance
  between short and long-term benefits, however it
  is probably a enough
  target) profits, assets, sales revenue, market
  capitalisation?

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Business Objectives contd

• (Attempting to
  grant a satisfactory return to
  - not just the owners. Difficult to
  define as a practical benchmark for business
  decisions.)
• Achieving development
  (Achieving economic growth while
• 
  environmental impact and meeting societys
  expectations of corporate
  citizenship.)

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Business Objectives contd

• Enhancement/maximisation of
• Means the business takes decisions intended to
  make it
• Encompasses the valuable features of the
  suggested objectives
• Likely to be the
  objective for many businesses

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Financial and Management Accounting

• Learning Objective Compare and contrast
  financial and management accounting
• accounting concerned with
  providing with
  information required for day-to-day running of
  the business ( to business)
• accounting concerned with
  providing the with
  useful information ( to
  business)

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Financial and Management Accounting contd
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The Main Financial Reports - an overview

• Learning Objective Provide an overview of the
  main financial reports
• There are main financial reports
• The Statement of
  (shows the sources and uses of
  for a period)
• The Statement (aka Profit and
  Loss measures and reports how much
  has been generated in a period)
• The Statement of
• (shows all changes in
  in net assets from transactions during
  the period)
• The (aka the
  Statement of Financial Position shows overall
  financial position)

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A Simple Example

• Lee starts a wrapping paper business with 100
• On the first day, he uses the 100 to purchase
  wrapping paper (
  )
• On the same day he sells 75 of that inventory
  for 110 in total
• What cash movements took place in the first day
  of trading?
• CASH FLOW STATEMENT
• Closing balance for the day is
• (ie opening balance - stock
  purchase sales )

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A Simple Example contd

• How much did increase as a
  result of the first days trading?
• INCOME STATEMENT
• The increase or decrease in wealth is measured as
  the between
  made and the cost of goods sold (
  )
• sales 110 - COGS 75
• Note only the cost of the paper
  (75) is measured against the sales to find
  profit, the
• cost of the wrapping paper first
  purchased (100).

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A Simple example contd

• What has happened to Owners Equity during this
  period?
• STATEMENT OF CHANGES IN OWNERS EQUITY
• Beginning Owners equity
• Plus Profit
• Ending owners Equity

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A Simple Example contd

• What is the financial position at end of the 1st
  day?
• BALANCE SHEET
• At the end of the first day, a balance sheet is
  drawn up, showing the resources held by the
  business
• Cash (closing balance)
• Inventory (stock available for resale)
• Total business wealth at end of day
• Note that the of has led to
  an increase in of
• Note also that the increase in of
  10 is the same as the increase in
  because wealth does exist only
  in the form of cash (see inventory)

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Financial Report Relationships
Figure 1.6