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
– Contemporary View
TRADITIONAL NONFINANCIAL
FINANCIAL Information
Accounting
Information
Other Quantitative Qualitative
Financial Information: Information:
Information: • Percentage of •Customer &
• Assets Defects Employee
• Liabilities • # Customer Satisfaction
• Revenues Complaints •Product &
• Gross Margin • Warranty Claims Service Quality
• Operating • Inventory Units •Reputation
Expenses • Budgeted Hours
Integration of Quantitative and
Qualitative Data

ERP systems aid in the integration of

both quantitative and qualitative
data, so that data become useful
information, and this information can
be transformed into knowledge that
allows effective communication
throughout an organization.
Users of Financial
Information
Types of Information Needed By
External Users
• Information about current
and future profitability of a
Stockholders company
& Investors • Examples: annual reports,
registration statements,
prospectuses
Types of Information Needed By
External Users

Stockholders
& Investors

Information about company

financial health and ability
to repay loans. Creditors
Examples: cash flow
statements, financial ratios
Types of Information Needed By
External Users
• Specific information needs
such as income measurement,
Government
Agencies payroll, and taxable assets
• Examples: income tax returns
and payroll reports

Creditors
Types of Information Needed By
External Users

Government
Agencies

• Detailed information that’s

more flexible than financial
Suppliers
information and similar to and
internal user needs. Customers
• Examples: bank balances and
inventory levels
Types of Information Needed By
Internal Users
• Internal users, particularly management,
need more flexible and detailed information
that will allow them to perform:

Planning
Operating

Controlling
 Short –Term Planning Activities
Known as
Operational
Planning
includes:
Time
Sales budgets
quotas
Customer
Service
Needs
Current
Cash
Needs
 Long–Term Planning Activities
Known as
Strategic
Planning
includes:
Plant
Sales Locations
Growth
New
Equipment
Investment
Market
Share
 Operating Activities
Should Should
We We
Accept Make or
Special Buy
Orders? Parts?
????
Daily
Business
Decisions
What
???? Price
Should
We Should
Advertise? Be
Charged?
 Controlling Activities
Involves motivation, monitoring, and
evaluation of employees to attain
company goals.

Examples Goals
Achieved
include:
• Incentives
• Performance
Measures
• Product Quality
J
Functional Areas of Management
Managers are
found in all
Finance functional areas of
an organization.

Marketing

Human Operations
Resources
and
Production
The Role of Managerial Accountants

Managerial accountants
have become decision-support
specialists who see their role as
interpreting information, putting it
into a useful format for other
managers, and facilitating
management decision making.
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: 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: 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
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.
 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.
 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.
 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.
 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.
 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.)
 Ethics and
Decision Making
In today’s 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?
End of Chapter 1