Chapter 1 Accounting Information for
Decision Making
Types of Accounting Information - answersFinancial, Managerial, and Tax Accounting
Financial Accounting - answers-Information describes the financial resources,
obligations, and activities of an economic entity.
-Assists external users such as investors and creditors in the decision-making process.
Managerial Accounting - answers-Involves the development and interpretation of
accounting information for management.
-Information can be specifically tailored to management's needs in order to assist in the
decision-making process.
-Reports are only provided to internal users.
Tax Accounting - answersInformation must conform with income tax reporting
requirements.
Accounting Process - answers> The Accounting Process > Accounting Information >
Decision Makers > Economic Acitivies >
Accounting Systems - answersAn accounting system consists of the personnel,
procedures, technology, and records used by an organization (1) to develop accounting
information and (2) to communicate this information to decision makers.
Basic Functions of an Accounting System - answers-Interpret and record the effects of
business transactions.
-Classify the effects of similar transactions to compute totals to be used in reports.
-Summarize and communicate the information contained in the system to decision
makers.
Components of Internal Control - answersControl Environment > Risk Assessment >
Control Activities > Information and Communication > Monitoring
External Users of Accounting Information - answers-Owners
-Creditors
-Potential investors
-Labor unions
-Governmental agencies
-Suppliers
, -Customers
-Trade associations
-General public
Primary Financial Statements - answers-Balance sheet: shows where the company
stands in financial terms on a specific date; also called the statement of financial
position.
-Income statement: shows the details of a company's profit-related activities over a
period of time.
-Statement of cash flows: shows the details of a company's activities involving cash
over a period of time.
Financial Reporting - answers-A means to an end; not an end in and of itself.
-Improve the quality of decision making for outside users.
-Help to create prosperous society.
Financial Reporting vs. Financial Statements - answers-Financial statements are a
subset of the broader concept of financial reporting.
-Financial reporting also includes other communications to external parties including
press releases, disclosures, and other open communications.
Historical in Nature - answers-Financial statements report events for an accounting
period that has already occurred.
-Focuses on the past more than the future.
Inexact and approximate measures - answers-Accounting information is often based on
estimates, judgment, and assumptions about the past and the future.
-Considered an inherent limitation of accounting information.
General-Purpose Assumption - answers-Information is not tailored for a specific user.
-The same financial reporting package is available for multiple user groups.
Explanation - answers-Value is enhanced by management explanations.
-Qualitative information assists in interpreting the financial reports.
Integrity of Accounting Information - answers-Complete
-Unbroken
-Unimpaired
-Sound
-Honest
-Sincere
The integrity of accounting information is enhanced in three primary ways - answers-
Institutional features
-Professional accounting organizations
-Personal competence, judgment, and ethical behavior
Decision Making
Types of Accounting Information - answersFinancial, Managerial, and Tax Accounting
Financial Accounting - answers-Information describes the financial resources,
obligations, and activities of an economic entity.
-Assists external users such as investors and creditors in the decision-making process.
Managerial Accounting - answers-Involves the development and interpretation of
accounting information for management.
-Information can be specifically tailored to management's needs in order to assist in the
decision-making process.
-Reports are only provided to internal users.
Tax Accounting - answersInformation must conform with income tax reporting
requirements.
Accounting Process - answers> The Accounting Process > Accounting Information >
Decision Makers > Economic Acitivies >
Accounting Systems - answersAn accounting system consists of the personnel,
procedures, technology, and records used by an organization (1) to develop accounting
information and (2) to communicate this information to decision makers.
Basic Functions of an Accounting System - answers-Interpret and record the effects of
business transactions.
-Classify the effects of similar transactions to compute totals to be used in reports.
-Summarize and communicate the information contained in the system to decision
makers.
Components of Internal Control - answersControl Environment > Risk Assessment >
Control Activities > Information and Communication > Monitoring
External Users of Accounting Information - answers-Owners
-Creditors
-Potential investors
-Labor unions
-Governmental agencies
-Suppliers
, -Customers
-Trade associations
-General public
Primary Financial Statements - answers-Balance sheet: shows where the company
stands in financial terms on a specific date; also called the statement of financial
position.
-Income statement: shows the details of a company's profit-related activities over a
period of time.
-Statement of cash flows: shows the details of a company's activities involving cash
over a period of time.
Financial Reporting - answers-A means to an end; not an end in and of itself.
-Improve the quality of decision making for outside users.
-Help to create prosperous society.
Financial Reporting vs. Financial Statements - answers-Financial statements are a
subset of the broader concept of financial reporting.
-Financial reporting also includes other communications to external parties including
press releases, disclosures, and other open communications.
Historical in Nature - answers-Financial statements report events for an accounting
period that has already occurred.
-Focuses on the past more than the future.
Inexact and approximate measures - answers-Accounting information is often based on
estimates, judgment, and assumptions about the past and the future.
-Considered an inherent limitation of accounting information.
General-Purpose Assumption - answers-Information is not tailored for a specific user.
-The same financial reporting package is available for multiple user groups.
Explanation - answers-Value is enhanced by management explanations.
-Qualitative information assists in interpreting the financial reports.
Integrity of Accounting Information - answers-Complete
-Unbroken
-Unimpaired
-Sound
-Honest
-Sincere
The integrity of accounting information is enhanced in three primary ways - answers-
Institutional features
-Professional accounting organizations
-Personal competence, judgment, and ethical behavior
