0 CHAPTER 2 The Roles of Managerial Accounting Information © 2009 Cengage Learning

1 1 Introduction DATA- Financial Statements, customer lists, inventory records, number and type of products or services sold. INFORMATION - Data that have been organized, processed, and summarized. KNOWLEDGE – Information that is shared and exploited so that it adds value to an organization.

2 2 Introduction DATA become INFORMATION when organized, processed, and summarized, and information becomes KNOWLEDGE when it is shared and exploited to add value to an organization. Key Concept

3 3 Accounting Information Accounting Information Systems (AIS) Traditionally has captured only financial data Enterprise Resource Planning Systems (ERP) Integrates AIS with other information systems to capture both quantitative and qualitative data and transforms it into information and knowledge

4 4 Accounting Information Accounting information includes both financial and nonfinancial information used by decision makers. Key Concept

5 5 Accounting Information Accounting Information Systems (AIS) Traditionally has captured only financial data Enterprise Resource Planning Systems (ERP) Integrates AIS with other information systems to capture both quantitative and qualitative data and transforms it into information and knowledge

6 6 Knowledge Management Tools Data Warehouses Data Mining Knowledge Warehouses Enterprise Resource Planning Systems (ERP) Electronic Data Interchange (EDI)

7 7 Knowledge Management Tools Knowledge management tools such as knowledge warehouses, enterprise resource planning (ERP) systems, and electronic data interchange (EDI) can reduce costs and result in faster and better decisions. Key Concept

8 8 Users of Accounting Information External Stockholders Potential Investors Creditors Government Agencies Suppliers Customers Internal Employees Employee Teams Departments Regions Top Management Financial AccountingManagerial Accounting

9 9 The Users of Accounting Information Planning Short-term / Operational Long-term / Strategic Identify resources needed to achieve goals

10 The Users of Accounting Information Operating activities involve determining: Day-to-day operations What to produce The selling price Who does what What to advertise

11 The Users of Accounting Information Controlling Are we attaining the organization’s goals? Are we motivating employees? Are we comparing actual outcomes to planned outcomes?

12 Users of Accounting Information The three primary activities of managers are planning, operating, and controlling. Key Concept

13 The Functional Areas of Management The Operations and Production Function The Marketing Function The Finance Function The Human Resource Function

14 The Role of the Managerial Accountant Traditionally thought of as “bean counters” or “number crunchers” Today’s managerial accountants are decision-support specialists They help interpret information and put it into a format useful for other managers

15 The Role of the Managerial Accountant Managerial accountants facilitate management decision making. Key Concept

16 The Information Needs of Internal and External Users The information needs of external users and internal users differ in significant ways. Key Concept

17 The Information Needs of Internal and External Users Internal Users More flexible May be geared toward specific segments of a company May be customized, less precise, and uses estimates frequently External Users Less flexible Geared toward reports on company as a whole Must meet requirements of SEC, GAAP, IRS

18 The Information Needs of Internal and External Users Internal accounting information is generally: Forward-looking, emphasizing the future rather than the past More timely, may sacrifice accuracy Emphasizes segments of an organization rather than the company as a whole

19 An Introduction to Decision Making Decision making is deciding: Which college to attend? Which big $$ item to purchase? Whether to accept a summer job? Whether to join a particular group?

20 Decision Making The process of identifying different courses of action and selecting one decision appropriate to a given situation. Requires using judgment.

21 A Decision-Making Model Step 1 Define the problem.

22 A Decision-Making Model Step 2 Identify objectives. Both Quantitative and Qualitative

23 A Decision-Making Model Step 3 Identify and analyze available options.

24 A Decision Making Model Step 4 Consider Ethical Implications

25 A Decision-Making Model Step 5 Select the best option.

26 A Decision-Making Model Never make decisions with just the numbers! Always consider non-numerical (qualitative) information. Key Concept

27 A Decision-Making Model Implement the decision and evaluate the results. If the decision turns out to be less than optimal, go back to step one and repeat the process.

28 Relevant Factors and Decision Making Sunk costs are not relevant. Key Concept

29 Relevant Factors and Decision Making Future costs that do not differ between alternatives are not relevant. Key Concept

30 Relevant Factors and Decision Making Opportunity Costs The benefits forgone by choosing one alternative over another

31 Relevant Factors and Decision Making Opportunity costs are relevant. Key Concept

32 Risk and Decision Making Is the decision maker a risk seeker or risk adverse?

33 Enterprise Risk Management Every business faces risk and uncertainty Risk is often thought of in negative terms, but risk can provide opportunities Businesses must identify and effectively manage risks

34 Ethics and Decision Making Business managers make ethical decisions every day Economic decisions have an ethical component Businesses must consider both the economic and ethical impact of decisions