FINANCIAL ACCOUNTING INFORMATION AS AN AID TO MANAGEMENT DECISION MAKING

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FINANCIAL ACCOUNTING INFORMATION AS AN AID TO MANAGEMENT DECISION MAKING

CHAPTER ONE

DEFINITION OF TERMS

Financial Accounting: Financial accounting is concerned with the recording of transactions for a business enterprise or other economic units and the periodic preparation of various reports from such records. Financial accounting then can be said to be a systematic gathering, identifying, summarizing and reporting of business transactions in monetary terms such that it provides information which permits informed judgment by the users of such information.

Information: These can be said to be facts needed or received by a person, or group of persons which is or will be useful to them.

Management: Management can be defined as the rational selection of courses of action to optimize the inter-relationship of a material and money for the survival and growth of the organization. It can also be regarded as the process of getting things done through people.

Decision-Making: Decision making can be defined as identifying alternatives, evaluating such alternatives and choosing from such alternatives. Decision making can be viewed as the very fabric of which organized activity is made.

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

The attainment of this objective necessarily requires both the identification as well as the disclosure of an adequate amount of information considered relevant by the users.

Financial accounting information therefore, is the information derived from the financial accounting report. The essence of this information is for management and other users to make decisions. Therefore, the accuracy of decision making depends on the effective and efficient design of management information system.

The accounting concerned prepares the financial accounting information in such a way that will enable users to derive maximum information for their use.

Decision making itself can be described as the art or science of choosing among possible managerial actions. The art or science of decision making enable management of a business to choose from among a range of already analysed and evaluated alternative.

Two classes of decision makers can be identified in respect of the use of financial accounting information. These are the external users and the internal users. Management represents and the internal users include creditiors, shareholders, government agencies, trade unions e.t.c. Managers are the major users of financial accounting information need this information to plan.

The impact of financial accounting information on the management of any business cannot be overlooked, though the extent of such..

1.2 STATEMENT OF THE PROBLEM

Managers of certain businesses do not have sound accounting systems to enable them monitor operating expenses and revenues. They do not need the warings communicated by financial accounting information. This ignorance or lack of financial accounting information, may lead to the non-effective and inefficient accomplishment of the firm’s objectives.

It is only through accounting information that managers and external users get a picture of the organization as a total entity. Managers who fail to realize this do not appreciate an accountants analysis in respect of financial accounting information generated. This may lead to poor decisions being taken and it may affect the profitability and performance of the organization.

Some organizations, due to low financial layout or lack of adequate planning or ignorance may not employ expert hands needed and this causes the effect and importance of financial accounting information on decisions taken not to be noticed or gained by the organization.

The researchers in this study will seek to show the information management can derive from financial accounting and their usefulness for decision making in business.

1.3 OBJECTIVE OF THE STUDY

The objectives of study are as follows:

1. To ascertain of there is any relationship between effective use of financial accounting information and the decisions made in an organization.

2. To ascertain whether company performance is related to efficient and effective use of financial accounting information.

3. To determine factors that may constrain or promote the effective use of financial accounting information.

4. To make recommendations which may enhance the employment of information provided by accounting system.

Impact may not be the same for every business. This study will seek to inquire into how monetary and financial information arranged in a professional accounting manner will influence managerial decision.

1.4 SIGNIFICANCE OF THE STUDY

This work would be of immense benefit to the following groups.

1. Financial analysts.

2. Economic researchers and students

3. Investors and shareholders

4. Creditors

5. Labour unions and the general public.

The major contributions of this work are:

1. To the management of companies as a tool for evaluating their performance and knowing whether they really take note of financial accounting information.

2. To further examination of the use of financial accounting as an information system.

3. To other researchers or research scholars who may wish to carryout further research on the subject matter or other related topics.

4. It will provide insight on how business organizations rely on financial accounting information for decision making.

1.5 SCOPS AND LIMITATIONS OF STUDY

This work tends to cover the use of financial accounting information indecision making since it will be voluminous to research into financial accounting information alone.

Such decision making shall be to enhance profitability of the firm.

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