Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 15 Using Management and Accounting Information

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Relevant information Better intelligence and knowledge Better decisions How Can Information Reduce Risk When Making a Decision? 15 2

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Relationship Between Information and Risk 15 3

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. How Can Information Reduce Risk When Making a Decision?  Information rules Based on situational experience provide guidance in handling similar situations or circumstances Changing conditions of business leads to continuously looking for new rules 15 4

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. How Can Information Reduce Risk When Making a Decision?  The difference between data and information Data: Numerical or verbal descriptions that usually result from some sort of measurement Information: Data that is used for a purpose, like comparing wages 15 5 © AUREMAR/ SHUTTERSTOCK

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. How Can Information Reduce Risk When Making a Decision?  Knowledge management Database: Collection of data or information stored in one place that can be used by people in the organization for decision making Knowledge management: Firm’s procedures for generating, using, and sharing the data and information 15 6

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. What is a Management Information System?  Management information system (MIS): Provides managers and employees with the information they need to perform their jobs effectively 15 7 © IMAGE SOURCE / ALAMY

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Management Information System (MIS) 15 8

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. What Is a Management Information System?  Size and complexity of the system Must be properly sized to provide sufficient information resources 15 9 © NAN728/ SHUTTERSTOCK

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Management Information System Functions 15 10

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. How Do Employees Use a Management Information System?  Collecting data Internal sources – Managers, employees, minutes of meetings External sources - Customers, suppliers, financial institutions and banks © PIXSOOZ/ SHUTTERSTOCK

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. How Do Employees Use a Management Information System? Cautions -Data from external sources can be expensive -Check for outdated or incomplete data -Check computer data if you disagree with it © YURI ARCURS/SHUTTERSTOCK

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. How Do Employees Use a Management Information System?  Storing data Method chosen to store data depends on the size and needs of the organization  Updating data The frequency depends on how fast they change and how often they are used © RIDO / SHUTTERSTOCK

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. How Do Employees Use a Management Information System?  Processing data Transformation of data into a form that is useful for a specific purpose Statistics: Measure that summarizes a particular characteristic of an entire group of numbers © PATRICK LAROQUE/ ALAMY

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. How Do Employees Use a Management Information System?  Presenting information Business reports include: -Introduction -Body -Conclusions -Recommendations Visual displays and tables 15 © ZERO CREATIVES/CULTURA/CORBIS

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Presenting Information 15 16

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. How Do Employees Use a Management Information System?  Making smart decisions Decision-support system (DSS): Software program that provides relevant data and information for decision making © BLEND IMAGES/ SHUTTERSTOCK

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. How Do Employees Use a Management Information System? Executive information system (ELS): Computer-based system that facilitates decision- making by providing easy access to internal and external information © CARLOSSELLER/ SHUTTERSTOCK

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. How Do Employees Use a Management Information System? Expert system: Computer program that uses artificial intelligence to imitate a human’s ability to think © ETHAN MILLER/ GETTY IMAGES

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Why Accounting Information Is Important  Accounting: Process of systematically collecting, analyzing, and reporting financial information © DACOLOGY/ ALAMY

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Why Audited Financial Statements Are Important Audit: Examination of company’s financial statements and accounting practices Generally accepted accounting principles (GAAPs): Guidelines and practices for companies reporting financial information and for the accounting profession © EAST/ SHUTTERSTOCK

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Reform: The Sarbanes–Oxley Act of 2002  The SEC must establish an oversight board to police the accounting industry  Top executives must certify periodic financial reports and are liable for intentional violations of reporting requirements  Accounting firms cannot provide many types of non-audit and consulting services to the companies they audit  Auditors must maintain financial documents and audit work papers for five years 15 22

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Reform: The Sarbanes–Oxley Act of 2002  Auditors, accountants, and employees can be imprisoned for up to 20 years and subject to fines for destroying financial documents and willful violations of the securities laws.  A public corporation must change its lead auditing firm every five years.  There is added protection for whistle-blowers who report violations of the Sarbanes–Oxley Act 15 23

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Different Types of Accounting  Managerial accounting: Provides information needed to make decisions about: Firm’s financing, investing, marketing, and operating activities  Financial accounting: Generates financial statements and reports for interested people outside an organization © SERGEJ KHAKMULLIN/ SHUTTERSTOCK

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Different Types of Accounting  Additional special areas of accounting include Cost accounting Tax accounting Government accounting Not-for-profit accounting © DENIS OPOLJN/SHUTTERSTICK

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Careers in Accounting  Qualities to be successful in accounting Responsible, honest, ethical Strong background in financial management Knowledge on computer and accounting software Communicate with people who need accounting information © DACOLOGY/ALAMY

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Careers in Accounting  Private accountant - Employed by a specific organization  Public accountant - Provides services to clients on a fee basis  Certified Public Accountant (CPA): Individual who has met state requirements for accounting education and experience and has passed a rigorous accounting examination 15 27

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Accounting Equation and the Balance Sheet AssetsLiabilities Owners’ Equity  The accounting equation Assets: Resources that a business owns Liabilities: The firm’s debts Owners’ equity: Difference between assets and liabilities

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Accounting Equation and the Balance Sheet Double-entry bookkeeping system: Each financial transaction is recorded as two separate accounting entries to maintain the balance of the accounting equation Annual report: Report distributed to stockholders and other interested parties that describes a firm’s operating activities and its financial condition 15 29

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Accounting Equation and the Balance Sheet  Balance Sheet: Summary of the dollar amounts of a firm’s assets, liabilities, and owners’ equity accounts at the end of a specific accounting period  Assets Liquidity: Ease with which it can be converted into cash Current assets: Can quickly be converted into cash or that will be used in one year or less Fixed assets: Will be held or used for a period longer than one year 15 30

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Accounting Equation and the Balance Sheet Intangible assets: Do not exist physically but have a value based on the rights or privileges they confer on the firm © STEPHEN COBURN / SHUTTERSTOCK

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Liabilities and Owners’ Equity  Current liabilities: Debts to be repaid in one year or less  Long-term liabilities: Debts that need not be repaid for at least one year Owners’ or stockholders’ equity -Sole proprietorships - Assets – liabilities = owners’ equity -Partnerships - Each partner’s share of ownership is reported separately in each owner’s name -Corporations - Stockholders’ equity Retained earnings: Profits not distributed to stockholders 15 32

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Income Statement  Summary of a firm’s revenues and expenses during a specified accounting period  Revenues: Dollar amounts earned by a firm from selling goods, providing services, or performing business activities Gross sales: Total dollar amount of all goods and services sold during the accounting period Net Sales: Actual dollar amounts received by a firm for the goods and services it has sold, after adjustment for returns, allowances, discounts 15 33

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Income Statement 15 34

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Income Statement  Cost of goods sold Gross profit -Firm’s net sales less the cost of goods sold Cost of goods sold Beginning inventory Net purchases Ending inventory

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Income Statement  Operating expenses: All business costs other than the cost of goods sold  Net income: Occurs when revenues exceed expenses  Net loss: Occurs when expenses exceed revenues 15 36

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CLASS EXERCISE  For each of the following accounts, indicate whether it belongs on a balance sheet or an income statement RENT CASH PATENT MORTGAGE PAYMENT NET INCOME SALARIES PAYABLE PURCHASE DELIVERY EQUIPMENT SALES COST OF GOODS SOLD COMMON STOCK

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Statement of Cash Flows  Illustrates how operating, investing, and financing activities of a company affect cash during an accounting period 15 38

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Evaluating Financial Statements  Comparing financial data Comparisons are possible because of GAAP Gives general idea of a firm’s relative effectiveness and its standing within the industry © JACOB SILBERG/REUTERS/LANDOV

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Comparisons of Present and Past Financial Statements for Microsoft 15 40

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Evaluating Financial Statements  Financial Ratios: Numbers that show the relationship between two elements of a firm’s financial statements © ADAM GREGOR/SHUTTERSTOCK

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Evaluating Financial Statements Measuring a firm’s ability to earn profits -Firm’s net income after taxes indicates whether the firm is profitable -Return on sales: Financial ratio calculated by dividing net income after taxes by net sales Return on sales = Net income after taxes / Net sale

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Evaluating Financial Statements Measuring a firm’s ability to pay its debts -Current ratio can be used to evaluate a firm’s ability to pay its current liabilities -Current ratio: Financial ratio computed by dividing current assets by current liabilities Current ratio = Current Assets / Current Liabilities

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Evaluating Financial Statements Measuring how well a firm manages its inventory -Inventory turnover: The number of times the firm sells its merchandise inventory in one year Inventory Turnover = Cost of Goods Sold / Average Inventory