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Chapter 1 Lecture Notes

Chapter 1 Lecture Notes - Lecture Notes Chapter 1 The Role...

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Lecture Notes: Chapter 1 – The Role of Accounting Information in Management Decision Making 1. What is Accounting? Accounting is concerned with providing information to users (i.e., decision makers) in order to help them make better business decisions. 2. What is the difference between financial accounting and managerial accounting? Financial accounting (AIM 2301) is concerned primarily with providing information to external users such as bankers, creditors, investors and regulators. Managerial accounting (AIM 2302) is concerned primarily with providing information to internal users, primarily management. 3. What is cost accounting and where does it fit in? Cost accounting is a method or technique for determining the cost of a project, process or thing. This cost is determined through direct measurement, arbitrary assignment, or systematic and rational allocation. Another definition is: Cost accounting is a sub-field of management accounting that is concerned with measuring, recording, reporting, and analyzing costs. 4. Why do managers need cost information to help them make decisions? Business ventures begin with profit motive. Information is used by management to remove uncertainty and bias regarding these potentially profitable business ventures. Cost accounting information is particularly useful to management because it provides the cost estimate in the profit function. The profit function is: π = TR – TC, where: π = profit = Operating Income, TR = total revenue = SR = Sales Revenue, and TC = total cost.
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