AF09101:

Accounting for Decision

Making

By: Dr. E. Mabonesho

Email: [email protected]
Mobile: 0652 251077
 EXPECTED OUTCOME OF THE
COURSE
 To enable students to
1. Discuss different accounting concepts and their
applications
2. Assess Performance of organizations using
Financial Data and make economic decisions
basing on financial data
3. Propose and Design Control and Performance
Measures
4. Organize Financial Information for Planning and
Control
5. Set up Budget and Control Mechanism
 TOPIC ONE - 1
Introduction to Accounting

Main Objectives
1.Discuss different accounting concepts

2.Students to appreciate why it is important to

study accounting for decision making
3.To provide students with knowledge and skills
that underlies the preparation of simple financial
statements
 What is accounting
 Accounting is the process of identifying, measuring
and communicating financial information about an
entity to permit informed judgments and decisions
by users of the information” (American Accounting
Association, 1966, reproduced in Weetman,2006,
p.6)
 Accounting is concerned with recording, posting,
summarizing and communicating of financial
information to internal users and outsiders
 Two main categories of accounting are:
Management and Financial Accounting
 Management accounting
 Management accounting is the field of accounting
concerned with collecting, recording, classifying,
summering, analyzing and reporting to internal
users financial information of a business for
decision marking.
 Management Accountant do prepare the
management accounting report for managers to
make reflections on their activities and make
decisions.
 Financial Accounting
 Financial accounting is the field of accounting
concerned with collecting, recording, classifying,
summering, analyzing and reporting mostly to
external users financial transactions pertaining to
a business for decision marking.
 Characteristics of financial information found in
the financial accounting reports
 Difference Financial VS Management Accounting
FOCUS Financial Accounting Management Accounting
Primary users External Users Internal users
Purpose of information Information about firm Information about costs for
performance and financial management’s decision
position for external users making, that is to help
decision making. That is to managers plan and control
help investors, creditors and business operations
other external users in decision
making
Timeliness Delayed/historical Historical, current and
future oriented
Regulations Legislation, Accounting Accounting Practices
Standards
and Accounting Practices

Scope Aggregated information about Disaggregated information –

the overall firm departmental information
 Why Accounting For Decision
Making?
1. Assist in stewardship and
accountability functions: accounting
provide complete and accurate records
for monitoring the managers
2. Control: Accounting impose discipline
on business and allows assessment of
business performances
 Why Accounting for Decision
Making?
4. Planning and budgeting: accounting
provide information to help planning and
budgeting
5. Communication: accounting helps
managers to communicate business
information to both internal and users that
have legitimate interest in the business
activities and performance
 ROLES OF ACCOUNTANTS
 The role Management Accountants
 To prepare monthly management accounts, budgets and
forecasts to aid business planning
 To do cost and variance analysis for internal decisions
 The role Financial Accountants
 To prepare and produce financial report for external users
to assess financial performance, financial position and
cash flow of the organization
 The role of financial analysts
 To analyse companies in order to assets investment opportunities
for decision makers
 ACCOUNTING AS A
LANGUAGE
 It helps communication among accountants
and between accountants and non-accountants
 It has principles/rules
 Accounting Concepts
 Business Entity Concept: A business is a separate
entity and distinct from the persons who own it.
 Going Concern Concept: This concept assumes that
the business enterprise will continue to operate in
business for the foreseeable future (12 months from
reporting date) – absence of
 Account Period Concept: In accordance with the
going concern concept it is usually assumed that the
life of a business is indefinitely long. Periodicity
require that the longer period is chopped into smaller
potions to allow assessment of business performance
 Accounting Concepts
 Cash basis accounting system: a business transaction is
recognised in books of accounts when cash is received or paid
 Accrual basis accounting system: a business transaction is
recognised in books of accounts when occurred (earned or
incurred) and not when cash is received or paid
 Matching Concept: this concept is based on the accounting
period concept and accrual concept, the accountant should
match the revenues and expenses of same accounting the
period
 Dual Aspect Concept (Double Entry System): This concept is
the core of accounting. According to this concept every
business transaction has a dual aspect (debit and credit)
CASE – 1

TOP Ltd capital structure compose of TZS10billion CRDB loans that has
been overdue for the last 3 months before its maturity date on 31 March
2017. The total long-term assets of TOP is TZS13billion. TOP is already in
breach of its agreed overdraft and the bank has refused to renew the
borrowings. The entity has also been unsuccessful in applying to other
financial institutions for re-financing. The bank have already indicated that
they are shortly going to commence legal proceedings to force the
company to cease trading and sell off its assets to generate funds to pay
off some of the borrowings.

In order to avoid the entity’s credit rating suffering any further decline, the
directors have refused to make disclosures in the financial statements and
have prepared the financial statements for the year ended 31 2017 on the
going concern basis.

Discuss as to whether the going concern principle has been violated. What
should be the reaction of the auditors about this reporting
 FINANCIAL STATEMENTS
 A financial statement (or financial report) is a formal
report for communicating the financial activities
(operating, financing and investing) of a an entity for
users to make economic decision
 Financial statements include
 Statement of financial position – assets, liability and equity
 Income statement – performance of firms (income and
expenses
 Cash flow statement – Cash movements from operating,
financing and investing activities of an entity
 Statement of change in equity – capital and profit changes

 Notes
 ELEMENTS OF FINANCIAL
STATEMENTS
 Asset: A resource controlled by the enterprise as a result
of past events and from which future economic benefits
are expected to flow to the enterprise (everything the firm
owns) – Examples….
 Liability: A present obligation of the enterprise arising
from past events, the settlement of which is expected to
result in an outflow from the enterprise of resources
embodying economic benefits (debts of the firm)
 Equity: The residual interest in the assets of an enterprise
after deducting all its liabilities (E = A - L) (Rights of the
owner)
 ELEMENTS OF FINANCIAL
STATEMENTS
 Income: Increases in economic benefits during the
accounting period in the form of inflows or
enhancements of assets or decreases in liabilities
that result in increases in equity, other than those
relating to contributions from equity participants.
Examples
 Expenses: Decreases in economic benefits during
the accounting period in the form of outflows or
depletions of assets or incurrence of liabilities that
result in decreases in equity, other than those
relating to distributions to equity participants.
 ACTIVIT Y – 1.1 (5 Mins)
 From the following financial Information classify them as lead to
asset, liability, equity, income or expenses recognition.
 The business owner issued cash and building to start a business
costing TZS 4m and TZS 34m respectively
 Sales of goods TZS 10m of which 2m were sales on credit to Sarah

 Purchases of goods 6m of which 1m were purchased on credit

from Jamal
 Cash purchases of Motor Vehicle for Business TZS 30m

 Drawings for personal use TZS 600,000

 Paid salariesTZS15m of which 3m are salary in advance

 Rent received TZS 4m

 Discount received from Jamal and allowed to Sarah TZS 0.5m and
0.2m respectively
 Users and Uses of Accounting
Information
 External Users: (Shareholders, prospective investors,
lenders and creditors, government agencies, financial
analysis, suppliers, customers and other citizens)
 Internal Users (Managers and employees)
 Accounting as an Aid to Decision Making
 Accounting as an Aid to stewardship - stewardship is
often used to mean “the care, handling and
management of resources”.
 Qualitative Characteristics if
Financial Statements
 Fundamental qualitative characteristics
 Relevance: information is capable of making a
difference in a decision context.” that information
is timely and has predictive value, confirmatory
value (Feedback value) and material error free.
 Faithful representation: Information is faithfully
represented if it is complete, (depiction including
numbers and words), neutral (unbiased) and free
from error (ideally).
 Enhancing Qualitative Characteristics
 Qualitative Characteristics if
Financial Statements
 Enhancing Qualitative Characteristics
 Comparability
 The Framework requires that users need to be able to compare an
enterprise’s financial information over time to identify trends in its
financial position and performance.
 Verifiability
 Financial information is verifiable when it enables knowledgeable and
independent observers to reach a consensus on whether a particular
depiction of an event or transaction is a faithful representation.
 Verifiability: knowledgeable and independent observers could reach
consensus, but not necessarily complete agreement, that a depiction is
a faithful representation
 Qualitative Characteristics if
Financial Statements
 Enhancing Qualitative Characteristics
 Timeliness: Refers more broadly to timeliness as being
able to influence decision makers.
 Understandability: Understandability involves
classification, characterizing and presenting information
clearly and concisely.
Accounting as an Aid to Decision Making
ACTIVIT Y – 1.3 (10 Mins)
In groups discuss if following stakeholders require financial
information for their decision making
 Existing and potential shareholders

 Suppliers and other trade creditors

 Lenders such as banks

 Government and their agencies such as TRA

 Customers and general public

 Auditors

 Managers of the company

 Employees
 REFLECTION
At this point you should be able to:
 Discuss the different accounting concepts or
principles
 Discuss the different users of financial
information and their information needs and
decisions
 Discuss the qualitative characteristics if
financial statements

At this point you should be able to:
Discuss the different accounting concepts or
principles
2. Discuss the different users of financial
information and their information needs and
decisions
Discuss the qualitative characteristics if
financial statements