Finance is the live wire of any business and therefore should be taking seriously by managers.
Role Of Accounting Information in Decision Making Process
In making decisions, accounting information is very important. Accounting information supports management decision process.
There are three major types of decisions in accounting;
- Business decision
- Investment decision
- Financial decision
These are the day to day decisions we make for the operations of the business.
These are decisions that helps to expand the capacity or production of the business or earnings of the business.
These are decisions that has to do with funding of the operations; should we borrow or get more equity?
All these decisions make up accounting information.
Accounting information is an important source of financial information in the management information system (MIS).
Accounting information plays a key role in formulating the financial information provided to information users.
Classification Of Accounting Information
Accounting information is classified into two major groups;
- Financial Accounting Information; this is designed to support management and other external users like investors and lenders in their decision making process. Resource allocation, investments and credits are covered here.
- Management Accounting Information; this is designed to support management in their business operations. Managers use this information to identify targets, device plans and manage daily bussiness operations.
Elements Of Financial Statements
Financial statements are reports that give us information about what is happening in a business.
Types Of Financial Statement
- Balance Sheet.
- Income/Cost Statement.
- Statement Of Cash Flow.
The balance sheet is a report that reflects the overall picture of existing assets and financial sources of the company. This report reflects a specific a specific date.
The balance sheet as a report gives us all the assets that the company own at a specific date and how these assets are funded.
ASSETS = TOTAL LIABILITY + TOTAL OWNERS EQUITY
Asset is also refered to as the value of a business as at a specific date.