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Book Cover
Financial and Managerial Accounting: The Basis for Business Decisions, 12/e
Jan R. Williams, University of Tennessee
Susan F. Haka, Michigan State University
Mark S. Bettner, Bucknell University
Robert F. Meigs

Accounting for Decision Making

Chapter Summary

Chapter 1 - Summary

LO 1

Discuss accounting as the language of business and the role of accounting information in making economic decisions.

Accounting is the means by which information about an enterprise is communicated and, thus, is sometimes called the language of business. Many different users have need for accounting information in order to make important decisions. These users include investors, creditors, management, governmental agencies, labor unions, and others. Because the primary role of accounting information is to provide useful information for decision-making purposes, it is sometimes referred to as a means to an end, with the end being the decision that is helped by the availability of accounting information.

LO 2

Discuss the significance of accounting systems in generating reliable accounting information.

Information systems are critical to the production of quality accounting information on a timely basis and the communication of that information to decision makers. While there are different types of information systems, they all have one characteristic in common - to meet the organization's needs for accounting information as efficiently as possible.

LO 3

Explain the importance of financial accounting information for external parties - primarily investors and creditors - in terms of the objectives and the characteristics of that information.

The primary objectives of financial accounting are to provide information that is useful in making investment and credit decisions; in assessing the amount, timing, and uncertainty of future cash flows; and in learning about the enterprise's economic resources, claims to resources, and changes in claims to resources. Some of the most important characteristics of financial accounting information are it is a means to an end, it is historical in nature, it results from inexact and approximate measures of business activity, and it is based on a general-purpose assumption.

LO 4

Explain the importance of management accounting information for internal parties - primarily management - in terms of the objectives and the characteristics of that information.

Management accounting information is useful to the enterprise in achieving its goals, objectives, and mission; assessing past performance and future directions; and evaluating and rewarding decision-making performance. Some of the important characteristics of management accounting information are its timeliness, its relationship to decision-making authority, its future orientation, its relationship to measuring efficiency and effectiveness, and the fact that it is a means to an end.

LO 5

Discuss elements of the system of external and internal financial reporting that create integrity in the reported information.

Integrity of financial reporting is important because of the reliance that is placed on financial information by users both outside and inside the reporting organization. Important dimensions of financial reporting that work together to ensure integrity in information are institutional features (accounting principles, internal structure, and audits); professional organizations (AICPA, IMA, CIA, AAA); and the competence, judgment, and ethical behavior of individual accountants.

LO 6

Identify and discuss several professional organizations that play important roles in the communication of accounting information.

The FASB and SEC are important organizations in terms of standard setting in the United States. The FASB is a private-sector organization that works closely with the SEC, which has legal authority to designate financial reporting standards for publicly held companies. Professional organizations that provide services to individual accountants in various segments of the accounting profession are the AICPA, IMA, IIA, and the AAA.

LO 7

Discuss the importance of personal competence, professional judgment, and ethical behavior on the part of accounting professionals.

Personal competence and professional judgment are, perhaps, the most important factors in ensuring the integrity of financial information. Competence is demonstrated by one's education and professional certification (CPA, CMA, CIA). Professional judgment is important because accounting information is often based on inexact measurements and assumptions are required. Ethical behavior refers to the quality of accountants being motivated to "do the right thing" in applying their skills.

LO 8

Describe various career opportunities in accounting.

Accounting opens the door to many diverse career opportunities. Public accounting is the segment of the profession where professionals offer audit, tax, and consulting services to clients. Management, or managerial, accounting refers to that segment of the accounting profession where professional accountants work for individual companies in a wide variety of capacities. Many accountants work for various governmental agencies. Some accountants choose education as a career and work to prepare students for future careers in one of the other segments of the accounting profession. While keeping detailed records (that is, bookkeeping) is a part of accounting, it is not a distinguishing characteristic of a career in accounting; in fact, many accounting careers involve little or no bookkeeping.

In this chapter we have established a framework for your study of accounting. You have learned how financial accounting provides information for external users, primarily investors and creditors, and how management accounting provides information for internal management. We have established the importance of integrity in accounting information and have learned about several things that build integrity. Looking ahead, in Chapter 2 we begin to look in greater depth at financial accounting and, more specifically, financial statements. You will be introduced to the three primary financial statements that provide information for investors and creditors. As the text progresses, you will learn more about the wealth of important information that these financial statements provide and how that information is used to make important financial decisions.