1.1. Identify and describe the different users of accounting information.
Accounting is a language that communicates economic information to people who have an interest in an organisation – managers, shareholders, potential investors, employees, creditors and the government.
For example, managers require information that will assist them in their decision-making and control activities; sharholders require information on the value of their investment and the income that is derived from their shareholding; Creditors require information on a firm‘s ability to meet its financial obligations. Government agencies are collecting accounting
informationsuch as prifits, investments, dividends paid, or amount of profits that are subject to taxation.
Non-profit maing organizations (churches, clubs, government units) require accounting information for decision-making and reporting the results of their activities.
There are manu users of accounting. They can be devided into two categories:
1. Internal parties withn the organisation (management accounting), (internal reporting). 2. External parties outside the organisation (shareholders, creditors and regulatory agencies)
(financial accounting), (external reporting).
1.2. Describe differences between management accounting and financial accounting.
Financial accounting Management accounting
Legal
requirements There is a statutory requirement to produce annual accounts Collecting of information is optional Focus on
individual parts or segments of business
Reports describe the whole of the
business Focuses on small parts of the organisation
Generally accepted accounting principles
Statements have to be prepared in accordance with generally accepted accounting principles
Statements are not required to adhere to generally accepted accounting principles
Time dimension Financial accounting reports what has happened in the past in an organisation
Management accounting is concerned with future information as well as past information
Report frequency A detailed set is published annually, less detailed are published semi-annually
Management accounting reports on various activities may be prepared at daily, weekly or monthly intervals
1.3. Explain each of the elements of the decision-making, planning and control process.
1. Identify objectives The first stage in the decision-making process should be to specify the objectives of organisation. Mostly organisations seek to maximize future profits. It can be and specific objectives like producing high-quality products or being the market leader within a particular market segment. 2. Search for
alternatives courses of action
take steps now so that the organisation will not be taken by surprise by any developments that may occur in the future.The company should consider one or more of the followingcourses of action:
1 developing new products for sale in existing markets; 2 developing new products for new markets;
3 developing new markets for existing products; 3. Select appropriate
courses of action
Management should gather information that facilitates decision-making, for example information about potential growth rates of the alternative activities that have been identified. The alternatives should be evaluated to identify courses of action that best satisfy the objektives of an organisation. 4. Implement the
decision After selection of alternative courses of action they should be implemented. It is as part of the budgeting and long-term pricess. Budget is the financial plan for implementing of decisions made by management. It is expressed in terms of cash inflows and outtflows, sales revenues and expensesMaster budget statement is organisation‘s expectations for futer periods statement and it consists of budgeted profit and cash flow
statements. 5. Compare actual
and planned outcomes
It is important to control implementing of decisions. The accountant produces performance reports wich consist of a comparison of actual outcomes (actual costs and ravenues) and planned outcomes (budgeted costs and revenues). Such reports highlight those activities that do not conform to plans.
6. Respond to
divergences from plan If the manager establish that actual outcomes do not conform to planed outcomes it is necessarily to take corrective action so that actual outcomes conform to planned outcomes. The plans may be modificated if the
comparisons indicate that the plans are no longer attainable. Process should come back to the 2th stage from the 6th. The plans should be regulary reviewed and if they are no longer attainable then alternative courses of action must be considered for achieving the organisation‘s objectives. 1.4 Describe what is meant by management by exception.
If the manager establish that actual outcomes do not conform to planed outcomes it is necessarily to take corrective action so that actual outcomes conform to planned outcomes. Performance reports highlight those activities that do not conform to plans. Managers can devote their scarce time to focusing mainly on these items. (The plans may be modificated if the comparisons indicate that the plans are no longer attainable.)
1.5 What is a product‘s life cycle?
