Transcript Slide 1

Accounting for Management Decisions
(DBA10AMD)
Greg Ellis
Room 12.05 (same room
as English teachers)
Ph: ???
Atrill, McLaney, Harvey, Jenner: Accounting 4e © 2008 Pearson Education Australia
University learning
• Education is not a ‘normal’ good that can
be simply purchased, like a mobile phone
• You have pay $$ and then earn it as well!
• New skills required to learn:
– Self analysis: become aware of own
strengths/weaknesses (eg time management)
– Networking skills, contact with other students
• My job is to provide the tools (rules,
analytical skills, etc)
• Your job is to learn it sufficiently (put it all
together and pass)
• You are responsible for your own learning
Atrill, McLaney, Harvey, Jenner: Accounting 4e © 2008 Pearson Education Australia
Accounting for Management Decisions
(DBA10AMD)
Week 1
INTRODUCTION TO ACCOUNTING
READING: Text CHAPTER 1
Atrill, McLaney, Harvey, Jenner: Accounting 4e © 2008 Pearson Education Australia
Learning Objectives
• Define accounting
• Discuss the role of accounting information
• List the main accounting information user
groups for a business entity
• Summarise the uses of accounting information
• Explain the procedures within the accounting
information system
• State the key characteristics of accounting
information
Atrill, McLaney, Harvey, Jenner: Accounting 4e © 2008 Pearson Education Australia
Learning Objectives cont’d
• Discuss the recent crisis in accounting
• Relate the steps in the planning process
• Discuss the nature of control in the decisionmaking process
• List some alternative business objectives
• Compare and contrast financial and
management accounting
• Provide an overview of the main financial
reports
Atrill, McLaney, Harvey, Jenner: Accounting 4e © 2008 Pearson Education Australia
Why Study Accounting?
– Accounting is the
– Anyone involved in the economic activities of
our society needs to know enough of this
language to be able to make
and
about those activities.
– “If you want to be
long-term, it could be
the most important subject.”
- Robert Kiyosaki author of Rich Dad, Poor Dad
Atrill, McLaney, Harvey, Jenner: Accounting 4e © 2008 Pearson Education Australia
Nature and Role of Accounting
Learning Objective: Define accounting
•Accounting is concerned with the
,
of economic
information
Collection
identifying
measuring
Analysis
economic
information
Communication
for decisions and
informed judgements
•Accounting information is
to those
who need to make
and
about
businesses, and for those people who
businesses.
Atrill, McLaney, Harvey, Jenner: Accounting 4e © 2008 Pearson Education Australia
Nature and Role of Accounting
Learning Objective: Discuss the role of accounting
information
•
: The more traditional role of
providing accountability reports of transactions
for a given period (
to owners)
•
: Is about assisting users
with making informed choices about issues
eg resource allocation
Atrill, McLaney, Harvey, Jenner: Accounting 4e © 2008 Pearson Education Australia
Accounting information
groups
Figure 1.1
Atrill, McLaney, Harvey, Jenner: Accounting 4e © 2008 Pearson Education Australia
Users and uses of accounting information
User
Management
Investors
Decision/Informed Judgment Made
Planning, directing and controlling
Assessing amount, timing, and risk of
future cash returns on their investment
Creditors
Assessing probability of collection and the
risk of late (or non-) payment
Employees
Assess long-term job prospects and
attractive salary packages
ASIC (Australian
Ensure compliance with regulations for
Securities &
disclosure; adherence to generally
Investment Comm.) accepted accounting principles (GAAPs)
Atrill, McLaney, Harvey, Jenner: Accounting 4e © 2008 Pearson Education Australia
Accounting as an information system
Learning Objective: Explain the different procedures
involved in the accounting information system
• Identify and capture
economic
information
•
the information collected in a
systematic manner
• Analyse and
information collected
• Report the information in a manner suitable to
the needs of
Atrill, McLaney, Harvey, Jenner: Accounting 4e © 2008 Pearson Education Australia
Accounting as an information system cont’d
Figure 1.2
Atrill, McLaney, Harvey, Jenner: Accounting 4e © 2008 Pearson Education Australia
Accounting as a service function
Learning Objective: State the key characteristics
of accounting information
•
•
•
(the ability to influence decisions)
(free from material error or bias)
(consistency of measurement
and presentation of items)
•
(clarity and readability
of presentation)
•
of information (is the benefit worth the
cost?)
Atrill, McLaney, Harvey, Jenner: Accounting 4e © 2008 Pearson Education Australia
Characteristics of accounting information
Figure 1.3
Atrill, McLaney, Harvey, Jenner: Accounting 4e © 2008 Pearson Education Australia
Accounting in crisis
Learning Objective: Discuss the recent crisis in
accounting
• Enron and HIH are cases of recent notoriety
• HIH collapse caused
of up to US$5.3b
• Resultant inquiry led to accusations of
accounting practices
•
of financial reports has
been damaged
• Tighter controls on the
of financial
information have been introduced
Atrill, McLaney, Harvey, Jenner: Accounting 4e © 2008 Pearson Education Australia
Decision-making, planning and control
• Planning is
for business success
• Prudent
is closely linked to
effective planning
• Planning covers both
and
scenarios
• Over time, plans are normally adapted to
circumstances
• Accounting
with business planning
Atrill, McLaney, Harvey, Jenner: Accounting 4e © 2008 Pearson Education Australia
Decision-making, planning & control cont’d
Learning objective: Relate steps in planning process
Planning is usually broken down into
:
1. Setting
or mission of the business
(Detailing what the business is basically trying to
achieve)
2. Setting
plans
(Describing how the business will set out to
achieve its long-term objectives)
3. Setting detailed
plans or
(Typically financial plans for
year ahead)
Atrill, McLaney, Harvey, Jenner: Accounting 4e © 2008 Pearson Education Australia
Decision-making, planning & control cont’d
Learning Objective: Discuss the nature of control in
the decision-making process
•Control is the
events actually occur
of making planned
•Accounting is useful in
outcomes with
commonly specified terms
to compare
outcomes in
•Managers can take steps to get the
business back on its proper course if
are
between planned
and actual outcomes
Atrill, McLaney, Harvey, Jenner: Accounting 4e © 2008 Pearson Education Australia
Overview of the planning and control process
Figure 1.4
Step 1
Identify business objectives
Step 2
Consider options
Step 3
Prepare a long-term plan based on the
most appropriate option(s)
Step 4
Prepare short-term plans (budgets)
Step 5
Perform and collect information on actual performance
Step 6
Respond to divergences between plans and actuals,
and exercise control
Step 7
Revise plans and budgets if necessary
Atrill, McLaney, Harvey, Jenner: Accounting 4e © 2008 Pearson Education Australia
Business Objectives
Learning Objective: Explain the different procedures
involved in the accounting information system.
The popular suggested business objectives include:
• Maximisation of
(this does
consider the need to cover business costs)
• Maximisation of
(this takes in to
account sales revenues as well as expenses,
but is limited as it does not include
such as
)
Atrill, McLaney, Harvey, Jenner: Accounting 4e © 2008 Pearson Education Australia
Business Objectives cont’d
• Maximisation of
employed
(accounts for level of profit as well as the level of
investment)
•
(This is the aim of most businesses,
however it is
a
objective)
•
(Like survival, most
businesses aim for it –
a primary objective)
•
(Encompasses survival and long-term
stability and aims to strike a balance between
short and long-term benefits, however it is
probably
a
enough target) profits,
assets, sales revenue, market capitalisation?
Atrill, McLaney, Harvey, Jenner: Accounting 4e © 2008 Pearson Education Australia
Business Objectives cont’d
•
(Attempting to grant a
satisfactory return to
not just the owners. Difficult to define as a
practical benchmark for business
decisions.)
• Achieving
development
(Achieving economic growth while
environmental
impact and meeting society’s expectations
of
corporate citizenship.)
Atrill, McLaney, Harvey, Jenner: Accounting 4e © 2008 Pearson Education Australia
Business Objectives cont’d
•Enhancement/maximisation of
• Means the business takes decisions
intended to make it
$$
• Encompasses
the valuable features
of the
suggested objectives
• Likely to be the
objective
for many businesses
Atrill, McLaney, Harvey, Jenner: Accounting 4e © 2008 Pearson Education Australia
Financial and Management Accounting
Learning Objective: Compare and contrast financial and
management accounting
•
accounting: concerned with
providing
with information
required for day-to-day running of the
business (
to business)
•
accounting: concerned with
providing the
with useful
information (
to business)
Atrill, McLaney, Harvey, Jenner: Accounting 4e © 2008 Pearson Education Australia
Financial and Management Accounting cont’d
Financial Accounting Management Accounting
Focus
Mainly external
Internal only
Nature of reports
General purpose
Specific purpose
Level of detail
Broad overview
Quite detailed
Restrictions
Accounting standards
and other regulations
No restrictions
Reporting
interval
Mainly semi-annual or
annual
Whenever required
Time horizon
Mainly historical
Both past and future
Range of
information
Quantifiable in money Can contain non-financial
terms; focus on
information; less focus on
objective and verifiable objectivity and verifiability
data
Atrill, McLaney, Harvey, Jenner: Accounting 4e © 2008 Pearson Education Australia
The Main Financial Reports - an overview
Learning Objective: Provide an overview of the
main financial reports
There are
main financial reports:
• The Statement of
(shows the
sources and uses of
for a period)
• The
Statement (aka ‘Profit and Loss’;
measures and reports how much
has
been generated in a period)
• The Statement of
(shows all changes in
in net
assets from transactions during the period)
• The
(aka the Statement of
Financial Position; shows overall financial
position)
Atrill, McLaney, Harvey, Jenner: Accounting 4e © 2008 Pearson Education Australia
A Simple Example
• Lee starts a wrapping paper business with $100
• On the first day, he uses the $100 to purchase
wrapping paper (‘
’)
• On the same day he sells 75% of that inventory
for $110 in total
What cash movements took place in the first day
of trading?
CASH FLOW STATEMENT
• Closing
balance for the day is
(ie opening balance
stock purchase
+
sales =
)
Atrill, McLaney, Harvey, Jenner: Accounting 4e © 2008 Pearson Education Australia
A Simple Example cont’d
How much did
increase as a result of
the first day’s trading?
INCOME STATEMENT
• The increase or decrease in wealth is
measured as the
between
made and the cost of goods sold (
)
• sales $110 - COGS $75 =
Note: only the cost of the paper
($75) is
measured against the sales to find profit,
the
cost of the wrapping paper first purchased
($100).
Atrill, McLaney, Harvey, Jenner: Accounting 4e © 2008 Pearson Education Australia
A Simple example cont’d
What has happened to Owners’ Equity during
this period?
STATEMENT OF CHANGES IN OWNERS EQUITY
Beginning Owners equity
Plus Profit
= Ending owners Equity
Atrill, McLaney, Harvey, Jenner: Accounting 4e © 2008 Pearson Education Australia
A Simple Example cont’d
What is the financial position at end of the 1st day?
BALANCE SHEET
At the end of the first day, a balance sheet is drawn
up, showing the resources held by the business:
• Cash (closing balance) =
• Inventory (stock available for resale) =
• Total business wealth at end of day =
Note that the
of
has led to an increase
in
of
Note also that the increase in
of $10 is
the same as the increase in
because wealth
does
exist only in the form of cash (see
inventory)
Atrill, McLaney, Harvey, Jenner: Accounting 4e © 2008 Pearson Education Australia
Financial Report Relationships
Figure 1.6
Balance sheet at the
beginning of Period 1
Balance sheet at the
end of Period 1
Balance sheet at the
end of Period 2
Income statement
Income statement
Cash flow statement
Cash flow statement
Statement of changes
in owners equity
Statement of changes
in owners equity
Period 1
Period 2
Time
Atrill, McLaney, Harvey, Jenner: Accounting 4e © 2008 Pearson Education Australia