MBA Financial & Managerial Accounting Guide

Financial
Financial &
& Managerial
Managerial Accounting
Accounting
MBA
MBA 651
651
CPU COLLEGE
SCHOOL OF GRADUATE
STUDIES
Academic Year 2005/06 ASA, JU, COBE, MBA 621

CHAPTER
ACCOUNTING:
ONE Information for Decision Making
DISCUSSION POINTS:
Introduction
Accounting As An Information System
Business Goals, Activities, & Performance Measures
Financial & Management Accounting
Basic Functions of an Accounting System
Accounting Vs. Bookkeeping
Decision Makers: The Users of Accounting Information
Types of Business Organization
The Corporate Form of Business
Accounting Measurement
Financial Position and the Accounting Equation
Communication Through Financial Statements
Generally Accepted Accounting
Principles (GAAP)
1.1 Objectives:
i.Define accounting, identify business goals and activities, and
describe the role of accounting in making informed decisions.
ii.Identify the many users of accounting information in society
iii.Describe the corporate form of business organization
iv.Explain the importance of business transactions, money
measure, and separate entity to accounting measurement
v.Define financial position, state the accounting equation, and
show how they are affected by simple transactions.
vi.Identify the principal financial statements
vii.Understand the relationship of generally accepted accounting
principles (GAAP) to financial statements, and identify the
organizations that influence GAAP.
OBJECTIVE 1:
Define accounting, identify business goals and

activities, and describe the role of accounting
in making informed decisions.

Accounting plays an important role in our economic and
social system. Sound decisions made by individuals,
businesses, governments, and other entities are essential for
the efficient distribution and use of the nation’s scarce
resources. To make such decisions , these groups must have
reliable information provided by the accounting system.
The objective of accounting, therefore, is to record,
summarize, report, and interpret economic data for use by
many groups within our economic and social system.

(Accounting As An Information Cont’d)
 Accounting “is not an end in itself”, but it is an information

system that measures, processes, and communicates
financial information about an identifiable economic unit.
 Accounting provides a vital service by supplying the
information decision makers need to make reasoned choices
among alternative uses of scarce resources in the conduct of
business and economic activities.

(Accounting As An Information Cont’d)
 Accounting Is a Link between Decision Makers and

Business Activities
o First, accounting measures business activities by

recording data about them for future use.
o Then the data are sorted until needed and then
processed to become useful information.
o Finally, the information is communicated through
reports to decision makers.
 Therefore, we can say that data about business activities are
the input to the accounting system and the useful
information for decision makers is the output.
The Accounting
Process:
Accomplished by
storage & preparation of
data
Accounting
“links” decision
Communication:
Economic makers with Accomplished by
Activities: economic Reporting
activities  and
with the results of
their decisions.
Actions
(decisions) Decision
makers
3.
3. Business
Business Goals,
Goals, Activities,
Activities, &
& Performance
Performance
Measures
Measures
A business is an economic unit that aims to sell goods
and services to customers at prices that will provide an
adequate return to its owners.
Businesses, though diverse, have similar goals and
engage in similar activities.

(Business
(Business Goals,
Goals, Activities
Activities Cont’d)
Cont’d)
Business Goals
1.Profitability
A business must take in enough money to pay all the costs of
doing business, with enough left over as profit for the owners to
want to stay in business.
2. Liquidity
A business must have enough funds available to pay debts when
they are due.

(Business
(Business Goals,
Goals, Activities
Cont’d)
Business Goals Business Activities
Financing Operating
Profitability
Liquidity Investing

(Business
(Business Goals,
Goals, Activities
Cont’d)
Business Activities
1)Financing Activities:
 Obtaining capital from owners and creditors
 Repaying creditors and a return to owners.
2) Investing Activities:
 Spending the capital it receives in ways that are productive and
will help the business achieve its objectives.
 Buying and selling long-term assets to be used in the business.
3) Operating Activities:
 Selling of goods and services to customers.
 Employing managers and workers, buying and producing goods
and services, and paying taxes.
(Business
(Business Goals,
Goals, Activities
Cont’d)
Performance Measures
Indicate whether or not managers are achieving the business
goals and if they are managing business activities well.
Performance measures include:
 Earned income or profit
 Cash flow
 Ratio of expenses to revenues
 Ratio of money owed to total resources controlled.
Note: Managers should understand these measures.

4.
4. Financial
Financial &
& Management
Management Accounting
Accounting
Accounting’s role of assisting decision makers by measuring,
processing, and communicating information is usually
divided into two categories:
1) Financial Accounting, and
2) Management Accounting
The two may be distinguished by the principal users of their
information.

(Financial
(Financial &
& Managerial
Managerial Cont’d)
Cont’d)
Financial Accounting
Is oriented toward the needs of external decision makers
Provides information in the form of financial statements so that
external decision makers can evaluate how well the business has
achieved its goals.
Financial statements report directly on the goals of profitability
and liquidity.
Financial statements are used extensively both inside and
outside a business to evaluate the business’s success.

(Financial
(Financial &
& Managerial
Cont’d)
Management Accounting
Is directed toward the needs of internal decision makers.
Provides managers and employees with information regarding
how they have done in the past and what they can expect in the
future.

Review
Review Question
Question
Q. State the importance of accounting.
A. Accounting provides the techniques for gathering
economic data and the language for communicating
these data to different individuals and institutions.
Although the information for one category of users may
differ markedly from that needed by other users,
accounting can provide each user group with financial
information to assist them in making decisions
regarding future actions.

(Financial
(Financial &
& Managerial
Cont’d)
Internal Users
Internal Users External Users
Managerial accounting provides

information needs for
Managerial internal
accounting Financial accounting provides
decision makers.
provides information needs external users with financial
for internal decision makers. statements.

Review
Review Question
Question
Q. Distinguish between profitability and

liquidity?
A. Profitability means earning enough

income (revenue) to attract and hold
investment capital. Whereas liquidity refers
to the firm’s ability to pay debts or bills
when they fall due.

Table 1.1 Summary of the Distinction between Financial & Management Accounting
Primary Users
Financial Accounting Managerial Accounting
 Investors  Internal managers of the business
 Creditors
 Government authorities
(IRS, SEC, etc.)
Purpose of Information
 Help investors, creditors, and others make  Help managers plan and control business operations
investment, credit, and other decisions.
Focus and Time Dimension

 Reliability, objectivity, and focus on the past  Relevance
Type of Report
 Financial statements restricted by GAAP  Internal reports not restricted by GAAP; determined by cost-
benefit analysis
Verification
 Annual independent audit by CPAs  No independent audit
Scope of Information
 Summary reports primarily on the company as a  Detailed reports on parts of the company
whole
Behavioral Implications
 Concern about adequacy of disclosure  Concern about how reports will affect employees behavior

Information
Information System
System
Cost
Cost&&Revenue
Revenue
Determination
Determination
Information
Information 
Job
Jobcosting
costing Decision
DecisionSupport
Support
Users
Users 
Process
Processcosting
costing

Investors
Investors 
ABC
ABC 
CVP
CVPanalysis
analysis

Creditors
Creditors 
Sales
Sales 
Performance
Performance

Managers Assets
Managers Assets&& evaluation
evaluation

Owners
Owners Liabilities
Liabilities 
Incremental
Incremental

Customers
Customers 
 Plant
Plantand
and analysis
analysis
Employees
Employees equipment 
 equipment Budgeting
Budgeting
Regulatory
Regulatory 
Loans
agencies Loans&&equity
equity 
Capital
Capital
agencies 
Receivables,
Receivables, allocation
-SEC allocation
-SEC payables
payables&&cash 
-IRS cash Earnings
Earningsper
per
-IRS Cash share
CashFlows
Flows share
 
Ratio
Ratioanalysis
analysis
From
From
operations
operations
Academic Year 2005/06 
From
Fromfinancing
financing ASA, JU, COBE, MBA 621
5.
5. Basic
Basic Functions
Functions of
of an
an Accounting
Accounting System
System
 Interpret
and record
business
transactions.
Payment
Car

(Basic
(Basic Functions
Functions of
of an
an Accounting
Accounting Cont’d)
Cont’d)
 Interpret  Classify
and record similar
business transactions
transactions. into useful  Summarize
reports. and
communicate
information to
decision
makers.

6.
6. Accounting
Accounting Vs.
Vs. Bookkeeping
Bookkeeping
 Accounting is the process of recording, summarizing,

reporting and interpreting economic data for use by many
groups within our economic and social system.
 Accounting includes the design of an information system that
meets user’s needs.
 In general, the primary goals of accounting are the analysis,
interpretation, and use of information.
 Bookkeeping refers to the mechanical and repetitive aspect
of accounting and focuses on recording transactions and
keeping financial records.
 Bookkeeping is a small part of accounting.

(Accounting
(Accounting Vs.
Vs. Bookkeeping
Bookkeeping Cont’d)
Cont’d)
 Computers are used extensively in accounting as a tool for

the accountant.
 A business’s many information needs are organized into a
Management Information System (MIS).
 An MIS consists of various interconnected subsystems. The
Accounting Information System (AIS), which collect data,
process it & report useful information, is the most important
subsystem.

Discussion
Discussion Question
Question
Q. Define Financial & Managerial Accounting.
A. Financial accounting is concerned with the recording of

transactions for a business enterprise or other economic unit
(in line with GAAP) and the periodic preparation of various
reports from such records.
Managerial accounting, on the other hand, is that part of
accounting that uses both historical and estimated data in
assisting management in daily operations and in planning
future operations. It deals with specific problems that
confront enterprise managers at various organizational
levels.
7.
7. Decision
Decision Makers:
Makers: The
The Users
Users of
of
Accounting
Accounting Information
Information
OBJECTIVE 2:
Identify the many users of accounting information

in society.

(Decision
(Decision Makers:
Makers: The
The Users
Users Cont’d)
Cont’d)
The Users of Accounting Information
Decision Makers
Management Those With Direct Those With

Finance Financial Interest Indirect
Operations &
Investors Financial Interest
Production
Creditors Tax Authorities
Marketing
Human Resources Regulators
Information Labor Unions
Systems Customers
Economic Planners
(Decision
(Decision Makers:
Makers: The
The Users
Users Cont’d)
Cont’d)
 The people who use accounting information to make

decisions fall into three categories. These are:
1) Management
2) Outside users with a direct financial interest, and
3) People, organizations, and agencies with an
indirect financial interest.
 These categories apply both to profit-oriented ventures as
well as government and not-for-profit organizations.

(Decision
(Decision Makers:
Makers: The
The Users
Users Cont’d)
Cont’d)
(A)Management
 Requires financial information to carry out its basic

functions.
1) Financing the business
2) Investing the resources of the business
3) Producing goods and services
4) Marketing goods and services
5) Managing employees
6) Providing information to decision makers.

(Decision
(Decision Makers:
Makers: The
The Users
Users Cont’d)
Cont’d)
(B) Outside Users With a Direct Financial Interest
1) Investors – includes those individuals or organizations

who have invested in the firm. It may also
include potential investors.
2) Creditors – also called lenders, are those individuals or
institutions that provide credit facilities to
the firm.
It may also include individuals or
organizations that supply goods and
services on credit.

(Decision
(Decision Makers:
Makers: The
The Users
Users Cont’d)
Cont’d)
(C) People, Organizations, and Agencies With an

Indirect Financial Interest
These group of users include:

 Tax authorities
 Regulatory agencies
 Labour Unions
 Customers
 Economic Planners
 Lawyers, etc.

Discussion
Discussion Question
Question
Q. What decision makers use accounting information?

A.Three groups of decision makers use accounting
information. These are:
1) Those who manage a business
2) Those outside a business enterprise who have a
direct financial interest in the business, and
3) Those people, organizations, and agencies that have
an indirect financial interest in the business.

8.
8. Types
Types of
of Business
Business Organization
Organization
Sole
Sole Partnership
Partnership Corporation
Corporation
Proprietorship
Proprietorship

(Types
(Types of
of Business
Organization Cont’d)
Cont’d)
 There are three dominant forms of business ownerships.
(1) Sole Proprietorship: is a
(2) Partnership: A business unit owned by
business unit owned by one person.
two or more persons as co-owners of
The single person (owner) assumes
business for profit.
all the profit (or loss) resulting from
In a partnership form of business the
the business activities for himself.
owners also called the partners agreed to
share the net income (or loss) among
(3) Corporation: A corporation is themselves according to the agreements
an artificial person, created by law stated in the articles of a partnership.
and having a distinct existence
separate and apart from the natural
persons who are responsible for its
creation and operation.

(Types
(Types of
of Business
Organization Cont’d)
Cont’d)
OBJECTIVE 3:
Describe the corporate form of business

organization.

9.
9. The
The Corporate
Corporate Form
Form of
of Business
Business
Formation of a Corporation
 Stockholders (or Shareholders)
 Board of Directors
 Management
STOCKHOLDERS BOARD OF MANAGEMENT

Invest in shares of DIRECTORS Executes policy,
capital stock and Determines corporate carries out day-to-day
elect the Board of policy, appoint operations, makes
Directors (BoD) management, & decision that maximize
declare dividends. shareholders wealth

10.
10. Accounting
Accounting Measurement
Measurement
OBJECTIVE 4:
Explain the importance of business transactions,

money measure, and separate entity to accounting
measurement.

(Accounting
(Accounting Measurement
Measurement Cont’d)
Cont’d)
 The following basic questions are important
1) What is measured?
2) When should the measurement be made?
3) What value should be placed on what is measured?

(Accounting
Cont’d)
What is Measured?
Business transactions as the object of measurement.

Business transactions are economic events that affect the
financial position of a business entity.
Business transactions are the raw material of accounting
reports.
To be measured and recorded, transactions must relate
directly to a business entity.

(Accounting
Cont’d)
Money Measure
Money is the only factor common to all business

transactions.
The monetary unit a business uses depends on the country
in which the business resides.
Exchange rates translate one currency to another.
The Concept of Separate Entity
A business is a separate entity, distinct not only from its

owner or owners but also from its creditors and customers.
Review
Review Questions
Questions
Q. Tell whether each of the following words or phrases

relates most closely to a: (a) business transaction, (b)
separate entity, or (c) money measure.
1) Partnership
2) Ethiopian birr
3) Payment of an expense
4) Corporation
5) Sale of an asset
Q. How do sole proprietorships, partnerships, and
corporations differ?

11.
11. Financial
Financial Position
Position and
and the
the Accounting
Accounting
Equation
Equation
OBJECTIVE 5:
Define financial position,

State the accounting equation, and show how they
are affected by simple transactions.

(Financial
(Financial Position
Position and
and the
the Cont’d)
Cont’d)
Financial Position – refers to the economic resources that

belong to a firm and claims against those resources at a point in
time.
Economic Resources = Equities

Economic Resources = Creditors Equities + Owners’ Equity
Assets = Liabilities + Owners’ Equity
Assets -
Liabilities
Owners’ Equity (or Shareholders’ Equity)
(Financial
(Financial Position
Position and
and the
the Cont’d)
Cont’d)
Assets:
Assets are economic resources owned by a business that are
expected to benefit future operations.
 Monetary items
 Nonmonetary physical things
Liabilities:
Liabilities are the present obligations of a business to pay cash,
transfer assets, or provide services to other entities in the future.

(Financial
(Financial Position
Position and
and the
the Cont’d)
Cont’d)
Owners’/Stockholders’ Equity
Owners’ equity represents the claims by the owners of a
business to the assets of the business.
Owners’ equity is the residual equity that remains after
deducting liabilities from assets.

12.
12. Communication
Communication Through
Through Financial
Financial
Statements
Statements
OBJECTIVE 6
Identify the principal financial statements

(Communication
(Communication Through
Through cont’d)
cont’d)
The Importance of Financial Statements

Financial statements are the primary means of
communicating important financial information to users.
Financial statements represent models of the business
enterprise because they show the business in financial terms.
Financial statements are not perfect representation of the
reality.
The four basic financial statements are:
(1)The Income Statement
(2)The Statement of Retained Earnings
(3)The Balance Sheet
(4)The Statement of Cash Flow
(Communication
(Communication Through
Through Cont’d)
Cont’d)
1. The Income Statement

 Summarizes the revenues earned, the expenses incurred and
the net income or loss realized over a period of time.
 It is considered by many to be the most important financial
report because it shows whether or not a business achieved its
profitability goal of earning an acceptable income.

(Communication
(Communication Through,
Through, Cont’d)
Cont’d)
[Name of Entity]
[Name of Report]
[Period]
Revenues:
Commission Income birr xxxx
Expenses;
Rent Expense birr xxx
Wages xxx
Utilities xxx
Total Expenses xxx
Net Income (Loss) birr xxx

(Communication
Through, Cont’d)
Cont’d)
2. The Statement of Retained Earnings

Shows the changes in retained earnings over a period of
time.
3. The Balance Sheet

Shows the financial position of a firm at a specific date.
It is often called the statement of financial position.
Presents a view of the business as the holder of resources,
or assets, that are equal to the claims against those assets.

(Communication
Through, Cont’d)
Cont’d)
4. The Statement of Cash Flow

Focuses on the company’s liquidity goal.
Shows cash produced by operating a business as well as
important financing and investing activities that take place
during the accounting period.
Is derived from the income statement and balance sheet.
Is directly related to the other three financial statements.

Review
Review Question
Question
Q. Why is the balance sheet sometimes called the statement of

financial position?
A. Financial position consists of the economic

resources that belong to a business and the claims
against those resources as of a specific date. This is
the information shown on the balance sheet.

(Specific)
Information about economic
Objectives
resources, claims to resources, and
changes in resources and claims. of
Financial
Reporting
Information useful in assessing
amount, timing and uncertainty of
future cash flows.
Information useful in making

investment and credit decisions.
(General)
Objectives
Objectives of
of External
External Financial
Financial
Reporting
Reporting
Balance Sheet
Income Statement
The primary
Statement of Cash Flows
financial
statements.

Review Question
Q1. What is the role of accounting in business?

Q2. Briefly describe the four basic financial statements.
A1. The simplest answer is that accounting provides information for managers
to use in operating the business. In addition, accounting provides information to
other users in assessing the economic performance and condition of the
business.
A2. The four basic financial statement are: (i) Income statement, (ii) statement
of retained earnings, (iii) statement of cash flows, and (iv) balance sheet. The
income statement reports the revenues, expenses, and the net income or loss of
the firm. The statement of retained earnings summarizes the changes in retained
earnings during the period; whereas the statement of cash flows reports the
inflows and outflows of cash during a period and the resulting availability of
cash. Finally, the balance sheet reports the economic resources of the business,
claims to those resources and changes in them.
Characteristics
Characteristics of
of Externally
Externally Reported
Reported
Information
Information
AAMeans
Meanstoto
an
anEnd
End
Usefulness
Usefulness Broader
Broader than
than
Enhanced
Enhancedviavia Financial
Financial
Explanation
Explanation Statements
Statements
Based
Basedonon Historical
Historicalin
in
General
General Purpose
Purpose Nature
Nature
Assumption
Assumption
Results
Resultsfrom
fromInexact
Inexactand
and
Approximate
ApproximateMeasures
Measures
Discussion
Discussion Question
Question
Q. State the process by which accounting provides
information to users.
Ans.
1. Identify users.
2. Assess users’ information needs.
3. Design accounting information system to meet
users’ needs.
4. Record economic data about business activities
and events.
5. Prepare accounting reports for users.

Information about decision-making
authority, for decision-making support, and Objectives
for evaluating and rewarding decision-making of
performance.
Managerial
Reporting
Information useful in assessing
both the past performance and future
directions of the enterprise and information
from external and internal sources.
Information useful to help the enterprise

achieve its goal, objectives and mission.

Characteristics
Characteristics of
of Management
Management
Accounting
Accounting Information
Information
Timeliness
Timeliness
Identify
Identify
AAMeans
Meanstoto Decision-
Decision-
an
anEnd
End Making
Making
Authority
Authority
Measures
Measuresof of Oriented
Oriented
Efficiency
Efficiencyand
and Toward
Toward
Effectiveness
Effectiveness Future
Future

13.
13. Generally
Generally Accepted
Accepted Accounting
Accounting
Principles
Principles (GAAP)
(GAAP)
OBJECTIVE 7
Understand the relationship of generally
accepted accounting principles (GAAP) to
financial statements, and identify the
organizations that influence GAAP.

(GAAP
(GAAP Cont’d)
Cont’d)
Generally Accepted Accounting Principles (GAAP)
Encompass the conventions, rules, and procedures necessary to
define accepted accounting practices at a particular time.
Need for Standard Setting (GAAP)
If every firm could record and report its financial data as it saw
fit, comparisons among companies performance would be
difficult, if not impossible. Thus, accountants strictly follow the
GAAP in preparing reports. These reports allow investors and
other users to compare one company to another.
Use of GAAP also enhances understandability of financial
statements.

(GAAP
(GAAP Cont’d)
Cont’d)
 Accounting principles and concepts develop from research,

accepted accounting practices, and pronouncements of
regulators.
Parties Involved In Standard Setting

1) The Financial Accounting Standards Board (FASB)
 In the USA, the FASB has the primary responsibility for
developing accounting principles.
 The FASB publishes Statements of Financial Accounting
Standards (SFAS) as well as Interpretations of these
Standards.

(GAAP
(GAAP Cont’d)
Cont’d)
2. The Securities and Exchange Commission (SEC)
An agency of the U.S. government, has authority over the
accounting and financial disclosures for companies whose shares of
ownership (stock) are traded and sold to the public.
The SEC normally accepts the accounting principles set forth by
the FASB. However, the SEC may issue Staff Accounting Bulletins
on accounting matters that may not have been addressed by the
FASB.

(GAAP
(GAAP Cont’d)
Cont’d)
3. The International Accounting Standards Board (IASB).
The IASB issues International Financial Reporting Standards
(IFRSs).
Significant differences currently exist between FASB and
IASB accounting principles.
However, the FASB and IASB are working together to reduce
and eliminate these differences into a single set of accounting
principles.
Many countries outside the USA use generally accepted
accounting principles adopted by the IASB.
4. Other professional organizations such as AAA, AICPA
NB. In Ethiopian case there are accounting professionals
associations such as: EPAAA, EAFA, ASE.
(GAAP
(GAAP Cont’d)
Cont’d)
GAAP starts with a conceptual framework that anchors

financial reports to a set of principles such as materiality
(the degree to which the transaction is big enough to matter)
and verifiability (the degree to which different people agree
on how to measure the transaction). The basic goal is to
provide users – equity investors, creditors, regulators and the
public – with "relevant, reliable and useful" information for
making good decisions.

(GAAP
(GAAP Cont’d)
Cont’d)
Principles
1. Cost principle means 4. Full disclosure principle 6. Consistency &
that accounting requires a company to report Comparability: States
information is based on the details behind financial that accountants should
actual cost. statements that would impact be consistent in using
users’ decisions. accounting methods.
This principle does not
2. Revenue recognition 5. Objective Evidence mean that a particular
principle provides Principle: States that entries in method of accounting,
guidance on when a the accounting records and data once adopted, should
company must recognize reported on the financial not be changed.
revenue. statements must be based on Accounting principles
objectively determinable and methods Change in
3. Matching Principle evidence. response to changes in
prescribes that a company the environment of
must record its expenses accounting.
incurred to generate the
revenue.
(GAAP
(GAAP Cont’d)
Cont’d)
Assumptions
The periodicity (or Going-concern

time period) Assumption: Most
assumption: accounting methods rely on
implies that a the going concern
company can divide assumption—that the
its economic company will have a long
activities into life. Despite numerous
business failures, most
artificial time
companies have a fairly
periods. These time
high continuance rate. As a
periods vary, but
rule, we expect companies
the most to last long enough to fulfil
common are their objectives and
monthly, quarterly, commitments.
and yearly.

(GAAP,
(GAAP, Cont’d)
Cont’d)
Constraints
st-Benefit: States Materiality: The materiality Conservatism Industry Practices:
t companies must constraint concerns an item’s Concept: this concept Another practical
nsider the cost- impact on a company’s holds that when consideration is indu
nefit overall financial operations. reasonable support practices. The peculi
ationship before An item is material if its exists for alternative nature of some indust
y release inclusion or omission would accounting methods & and business concern
ormation. They influence or change different measurement sometimes requires
the judgment of a reasonable techniques accountants departure from basic
st weigh the costs
person. It is immaterial, and should select the theory. For example,
providing the
therefore irrelevant, if it method or technique public-utility compan
ormation against would have no impact on a report noncurrent ass
that least likely
benefits that can decision maker. In short, it overstate Net Income first on the balance sh
derived from must make a difference or a and Assets. to highlight the indus
ng it. company need not disclose it. capital-intensive natu

14.
14. Types
Types of
of Businesses
Businesses
 Three types of businesses operated for profit include service,

merchandising, and manufacturing businesses.
 Each type of business and some examples are described below.
(1) Service businesses provide services rather than products to customers.
 Delta Air Lines (transportation services)
 The Walt Disney Company (entertainment services)
(2) Merchandising businesses sell products they purchase from other
businesses to customers.
 Wal-Mart (general merchandise)
 Amazon.com (Internet books, music, videos)
(3) Manufacturing businesses change basic inputs into products that are
sold to customers.
 General Motors Corporation (cars, trucks, vans)
 Dell Inc. (personal computers)

MBA Financial & Managerial Accounting Guide

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Financial

Academic Year 2005/06 ASA, JU, COBE, MBA 621

Define accounting, identify business goals and

Academic Year 2005/06 ASA, JU, COBE, MBA 621

Academic Year 2005/06 ASA, JU, COBE, MBA 621

 Accounting “is not an end in itself”, but it is an information

Academic Year 2005/06 ASA, JU, COBE, MBA 621

 Accounting Is a Link between Decision Makers and

o First, accounting measures business activities by

Academic Year 2005/06 ASA, JU, COBE, MBA 621

Academic Year 2005/06 ASA, JU, COBE, MBA 621

Academic Year 2005/06 ASA, JU, COBE, MBA 621

 Ratio of expenses to revenues

 Ratio of money owed to total resources controlled.

Note: Managers should understand these measures.

Academic Year 2005/06 ASA, JU, COBE, MBA 621

Academic Year 2005/06 ASA, JU, COBE, MBA 621

Academic Year 2005/06 ASA, JU, COBE, MBA 621

Academic Year 2005/06 ASA, JU, COBE, MBA 621

Academic Year 2005/06 ASA, JU, COBE, MBA 621

Managerial accounting provides

Academic Year 2005/06 ASA, JU, COBE, MBA 621

Q. Distinguish between profitability and

A. Profitability means earning enough

Academic Year 2005/06 ASA, JU, COBE, MBA 621

Focus and Time Dimension

Academic Year 2005/06 ASA, JU, COBE, MBA 621

Academic Year 2005/06 ASA, JU, COBE, MBA 621

Academic Year 2005/06 ASA, JU, COBE, MBA 621

 Accounting is the process of recording, summarizing,

Academic Year 2005/06 ASA, JU, COBE, MBA 621

 Computers are used extensively in accounting as a tool for

Academic Year 2005/06 ASA, JU, COBE, MBA 621

A. Financial accounting is concerned with the recording of

Identify the many users of accounting information

Academic Year 2005/06 ASA, JU, COBE, MBA 621

Management Those With Direct Those With

 The people who use accounting information to make

Academic Year 2005/06 ASA, JU, COBE, MBA 621

 Requires financial information to carry out its basic

Academic Year 2005/06 ASA, JU, COBE, MBA 621

(B) Outside Users With a Direct Financial Interest

1) Investors – includes those individuals or organizations

Academic Year 2005/06 ASA, JU, COBE, MBA 621

(C) People, Organizations, and Agencies With an

These group of users include:

Academic Year 2005/06 ASA, JU, COBE, MBA 621

Q. What decision makers use accounting information?

Academic Year 2005/06 ASA, JU, COBE, MBA 621

Academic Year 2005/06 ASA, JU, COBE, MBA 621

Academic Year 2005/06 ASA, JU, COBE, MBA 621

Describe the corporate form of business

Academic Year 2005/06 ASA, JU, COBE, MBA 621

STOCKHOLDERS BOARD OF MANAGEMENT

Academic Year 2005/06 ASA, JU, COBE, MBA 621

Explain the importance of business transactions,

Academic Year 2005/06 ASA, JU, COBE, MBA 621

 The following basic questions are important

Academic Year 2005/06 ASA, JU, COBE, MBA 621

Business transactions as the object of measurement.

Academic Year 2005/06 ASA, JU, COBE, MBA 621

Money is the only factor common to all business

The Concept of Separate Entity