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The Role of Accounting in Managerial Decisions

This paper focuses on the role of accounting in planning, accounting in the decision process, accounting in the controlling function, and the interpretation of accounting data and the evaluation of past performance.

language english
wordcount 7597 (cca 21 pages)
contextual quality N/A
language level N/A
price free
sources 12
Table of contents

In Brief 1
Distinctions between financial and managerial accounting 1
Accounting techniques for planning 4
Accounting for decision making 7
Accounting techniques for control 11
Evaluation of past performance 13

Preview of the essay: The Role of Accounting in Managerial Decisions

ACCOUNTING IN MANAGERIAL DECISIONS In Brief Accounting has been basic tool for management ever since the idea of double entry bookkeeping was influenced, about the time Columbus discovered America. Modern education for business usually starts with the fundamentals of accounting because they are the most familiar approaches to recording, classifying, and presenting quantitative facts about the firm. Accounting was initially a recorder of contractual obligations, a historical review. From this role, accounting took on a second function – reporting by consistent statements the status of the firm at points in time (in the balance sheet) and the measurement of revenue and expense over periods of time (in the income statements). With the development of the objectivity and consistency, the auditing function became essential as different financial interests (stockholders, creditors) sought reliable information about the operations of the firm. Until recently, conventional accounting thus remained oriented to the financial requirements of the firm. The demands of government taxation agencies also emphasized the balance sheet and the measurement of revenue and expense, even though the principles of measurement might vary in some details. All of these requirements stressed the accurate and consistent statement of what had happened in ...

... funds statement should be prepared directly from the accounting records. In the absence of direct reporting, a funds statement may be prepared from an examination of the income statement covering the relevant period and of the balance sheets as at the beginning and end of the period.

The funds derived from trading represent the sales or revenue less the amount of expenses requiring the application of funds in the accounting period covered by the report. Alternatively, the funds from trading may be determined by adding back to net income the expenses that did not require an application of funds. The most important such expense is depreciation, which represents an allocation or part of the expenditure on a fixed asset incurred in some other accounting period. As this expense does not require any application of funds in the period covered by the report, it must be added back to profit the funds derived from trading. Strictly speaking, depreciation does not provide funds but represents that part of revenue generated by operations not appearing in the income statement as a part of net income. In other words, depreciation does not provide funds; it preserves them.
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