1.

Describe the contemporary view of

accounting information systems and
describe and give examples of financial
and nonfinancial accounting information.
2. Compare and contrast managerial
accounting with financial accounting and
distinguish between the information
needs of external and internal users.

3. Recognize the role of relevant factors
in decision making; and
4. Understand source of ethical issues in
business and the importance of
maintaining an ethical business
environment.
Introduction
Accounting Information is used by
internal managers in their day-to-
day decision making and also by
external users, such as investors,
creditors, donors, and even the
Internal Revenue Service.

Accounting Information Systems Integration of Quantitative and

Contemporary View Qualitative Data
TRADITIONAL NONFINANCIAL
FINANCIAL Information
ERP systems aid in the integration of
Accounting
Information both quantitative and qualitative
Other Quantitative
data, so that data become useful
Qualitative
Financial Information: Information: information, and this information can
Information: Percentage of Customer & be transformed into knowledge that
Assets Defects Employee
Liabilities # Customer Satisfaction allows effective communication
Complaints
Revenues
Warranty Claims
Product & throughout an organization.
Gross Margin Service Quality
Operating Inventory Units Reputation
Expenses Budgeted Hours

1
 Users of Financial Types of Information Needed By
Information External Users
Information about current
and future profitability of a
Stockholders company
& Investors Examples: annual reports,
registration statements,
prospectuses

Types of Information Needed By Types of Information Needed By

External Users External Users
Specific information needs
such as income measurement,
Stockholders Government
& Investors Agencies payroll, and taxable assets
Examples: income tax returns
and payroll reports

Information about company

financial health and ability
to repay loans. Creditors Creditors
Examples: cash flow
statements, financial ratios

Types of Information Needed By Types of Information Needed By

External Users Internal Users
Internal users, particularly management,
need more flexible and detailed information
Government
Agencies that will allow them to perform:

Planning
Detailed information thats
more flexible than financial
Suppliers
Operating
information and similar to and
internal user needs. Customers Controlling
Examples: bank balances and
inventory levels

2
 Short Term Planning Activities LongTerm Planning Activities
Known as Known as
Operational Strategic
Planning Planning
includes: includes:
Time Plant
Sales budgets Sales Locations
quotas Growth
Customer New
Service Equipment
Needs Investment
Current Market
Cash Share
Needs

Operating Activities Controlling Activities

Should Should
We We Involves motivation, monitoring, and
Accept Make or evaluation of employees to attain
Special Buy company goals.
Orders? Parts?
????
Daily
Business Examples Goals
Achieved
Decisions include:
What
???? Incentives

J
Should Price
We Should Performance
Be
Advertise?
Charged? Measures
Product Quality

Functional Areas of Management The Role of Managerial Accountants

Managers are
found in all
Finance functional areas of
an organization. Managerial accountants
have become decision-support
specialists who see their role as
Marketing
interpreting information, putting it
Human Operations into a useful format for other
Resources managers, and facilitating
and
Production management decision making.

3
 Different Informational Needs
of Users
Due to the varying needs of
internal users, managerial
accounting is more
FLEXIBLE
than financial accounting.
The Information Needs of
External Users
USER: Government Agencies
Accounting Taxable income, sales, assets,
Information
comparisons of actual
Needed: expenditures to budgets, etc.
SOURCE: Tax returns and other
reports.
The Information Needs of
Internal Users
Marketing, operations and
USER: production, finance, and
human resource managers
Accounting Timely, detailed information
Information on sales and expenses,
product costs, budget data,
Needed:
and measures of performance.
SOURCE: Cost reports, budgets, and
other internal documents.
The Information Needs of
External Users
USER: Shareholders and Creditors
Accounting Sales, gross profit, net income,
Information cash flow, assets and liabilities,
Needed: earnings per share, etc.
Annual reports, financial
SOURCE: statements, and other
available documents.
The Information Needs of
External Users
USER: Customers and Suppliers
Accounting
Information Order status, shipping dates,
inventory levels, etc.
Needed:
Limited-access databases
SOURCE: available to specific
customers and suppliers.
Decision-Making
The process of identifying different
courses of action and selecting one
appropriate to a given situation.
An effective decision making model is one
that focuses on relevant factors that differ
between alternatives.
4
 Relevant Costs
These are avoidable or can be
eliminated by choosing one
alternative over another.
For Example: Buying a car with a CD
changer versus buying
a car without one.
Opportunity Costs
These are benefits forgone by
choosing one alternative over
another. They are relevant.
For Example: Choosing to go to college
or work full-time. The opportunity cost
is the higher salary you will receive as a
college graduate. (In general, these
costs are hard to quantify.)
End of Chapter 1
Sunk Costs
These are costs that have already
been incurred. They cannot be
avoided and are irrelevant.
For Example: Watching a horrible
rental movie that is unbearable during
its first 20 minutes. The rental fee is a
sunk cost. You can either decide to
stick it out or use the time to do
something more fun.
Ethics and
Decision Making
In todays business environment, companies have to be
aware not only of the economic impact of their decisions,
but also of their ethical impact.
Information
Good Ends?
being used Bad Ends?
for?