1. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 1-1 Accounting Information for Decision Making Chapter 1

2. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 1-2 Accounting information The accounting process Decision makers Economic activities Actions (decisions) Accounting “links” decision makers with economic activities  and with the results of their decisions.

3. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 1-3 Types of Accounting Information Financial Managerial Tax

4. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 1-4 Accounting Systems An accounting system consists of the personnel, procedures, technology, and records used by an organization to develop accounting information and to communicate this information to decision makers.

5. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 1-5 Information Users  Investors  Creditors  Managers  Owners  Customers  Employees  Regulators -SEC -IRS -FTC Information Users  Investors  Creditors  Managers  Owners  Customers  Employees  Regulators -SEC -IRS -FTC Decisions Supported  Performance evaluations  Stock investments  Tax strategies  Labor relations  Resource allocations  Lending decisions  Borrowing Decisions Supported  Performance evaluations  Stock investments  Tax strategies  Labor relations  Resource allocations  Lending decisions  Borrowing Information System Financial Information Provided  Profitability  Financial position  Cash flows Financial Information Provided  Profitability  Financial position  Cash flows

6. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 1-6 Basic Functions of an Accounting System  Summarize and communicate information to decision makers.  Classify similar transactions into useful reports.  Interpret and record business transactions.

7. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 1-7 Components of Internal Control Control Environment Risk Assessment Control Activities Information and Communication Monitoring

8. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 1-8 External Users of Accounting Information Owners Creditors Potential investors Labor unions Governmental agencies Suppliers Customers Trade associations General public

9. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 1-9 Provide information about economic resources, claims to resources, and changes in resources and claims. Provide information useful in assessing amount, timing and uncertainty of future cash flows. Provide information useful in making investment and credit decisions. (Specific) (General) Objectives of External Financial Reporting

10. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 1-10 Objectives of External Financial Reporting The primary financial statements. Income Statement Balance Sheet Statement of Cash Flows

11. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 1-11 Characteristics of Externally Reported Information A Means to an End Broader than Financial Statements Historical in Nature Results from Inexact and Approximate Measures Based on General-Purpose Assumption Usefulness Enhanced via Explanation

12. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 1-12 Users of Internal Accounting Information Board of directors Chief executive officer (CEO) Chief financial officer (CFO) Vice presidents Business unit managers Plant managers Store managers Line supervisors

13. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 1-13 Typical Simple Organization Chart Plant Accountants Plant Managers Plant Accountants Plant Managers Business Unit Managers V.P. Human Resources V.P. Information Services Chief Financial Officer (CFO) Chief Executive Officer (CEO) Board of Directors Owners V.P Ethics ControllerTreasurer

14. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 1-14 Objectives of Management Accounting Information To help achieve goals and missions To help evaluate and reward decision makers

15. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 1-15 Characteristics of Management Accounting Information Timeliness Identify Decision Maker Oriented Toward Future Measures of Efficiency and Effectiveness A Means to an End

16. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 1-16 Integrity of Accounting Information Institutional Features  Generally Accepted Accounting Principles (GAAP)  Financial Accounting Standards Board  International Accounting Standards Board  Securities and Exchange Commission  Public Company Accounting Oversight Board  Audits of Financial Statements  Legislation

17. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 1-17 Integrity of Accounting Information Professional Organizations  American Institute of Certified Public Accountants  Institute of Management Accountants  Institute of Internal Auditors  American Accounting Association  Committee of Sponsoring Organizations of the Treadway Commission (COSO)

18. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 1-18 Integrity of Accounting Information Competence, Judgment and Ethical Behavior  Certified Public Accountants (CPAs)  Certificate in Management Accounting (CMA)  Certificate in Internal Auditing (CIA)

19. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 1-19 Careers in Accounting  Public Accounting  Management Accounting  Governmental Accounting  Accounting Education