Accounting for the Nonfinancial Manager Chapter 1: Introduction

© Harvard University Division of Continuing Education, 2011 Accounting for Non-Financial Managers, Revised 2 nd ed. © Captus Press Inc. All Rights Reserved Chapter 1: Introduction Accounting: who needs it? Just about everyone who is involved in business or non-business administration needs to be aware of the way accounting information is prepared and used. 1: as general background (score-keeping): so that they can present themselves as intelligent, well-informed members of the management team; 2: to understand budgetary planning & control: H.R and other managers are judged (in part) on their financial performance; 3: to support decision making: H.R and other managers need to know how to present the financial aspects of their business proposals 1

© Harvard University Division of Continuing Education, 2011 Accounting for Non-Financial Managers, Revised 2 nd ed. © Captus Press Inc. All Rights Reserved Accounting for Score-Keeping: All organizations provide general purpose financial statements to external users: Income statement: (revenues, expenses and profits for a year) Balance sheet: (assets, liabilities and equity at the end of the year) Statement of owners’ equity (changes in owners’ equity) Cash flow statement (changes in cash) Which are sent annually to all shareholders, as well as government agencies and stock exchanges. 2

© Harvard University Division of Continuing Education, 2011 Accounting for Non-Financial Managers, Revised 2 nd ed. © Captus Press Inc. All Rights Reserved Accounting for Planning & Control: All organizational units use budgets for planning & control: 1: define the organizational objectives; 2: make plans to achieve objectives, (including a budget); 3: carry out the activities in the plan; 4: measure the results of operations (score-keeping); 5: compare the results with the plan (budgetary control); 6a: if the objectives have been achieved, move on; 6b: if the objectives have not been achieved instigate corrective action. 3

© Harvard University Division of Continuing Education, 2011 Accounting for Non-Financial Managers, Revised 2 nd ed. © Captus Press Inc. All Rights Reserved Decision Making: There is a financial dimension to decision making. 1: specify the problem or decision; 2: choose an appropriate decision technique; 3: gather relevant information; 4: use the information and the technique to make the decision; 5: implement the decision; 6: evaluate the outcome. 4

© Harvard University Division of Continuing Education, 2011 Accounting for Non-Financial Managers, Revised 2 nd ed. © Captus Press Inc. All Rights Reserved Accounting: Financial accounting (for external users); Management accounting (for internal users); Auditing (to ensure compliance with rules); Personal financial planning (applications to personal issues) 5