Accounting’s role of helping
decision makers by measuring, processing and communication information is usually divided into the categories of
management accounting and financial accounting. Although there is
considerable overlap in the functions of management accounting and financial
accounting, the two can be distinguished by who the principal users of their
information will be. Management
accounting provides internal decision makers who are charged with achieving
the goals of profitability and liquidity with information about financing, investing and operation activities.
Managers and employees who conduct the activities of the business need information that tell them how they
have done in the past and what they can expect in the future. For
example, Woolworths needs an operating report on each outlet that tells how
much was sold at that outlet and what cost were incurred, and it needs a
budget for each outlet that projects the
sales and cost for the next year.
Sometimes the term ‘cost accounting’ is used instead of management accounting. Financial accounting generates
report and communicates them to external
decision makers so that they can evaluate how well the business has
achieved its goals. These reports are called financial statements. Woolworths, for instance, will send
its financial statements to its owners, its banks and other creditors, and
government regulators. Financial statements report directly on the goals of
profitability and liquidity and are used extensively both inside and outside a
business to evaluate the business’s success. Its important for every person
involved with a business to understand financial statements. They are a central
feature of accounting and are the primary focus of this book.
Summary of main points in preceding excerpt
:
The role of
accounting can be divided into 2 categories :
1. Management
accounting, information for decision-makers inside the company about what has
happened in the past and what to expect in the future.
2. Financial
accounting, information for decision-makers outside the company. Usually in the
form of financial statements.
The purpose of
accounting is to provide information for
the purposes of assessment and decision making.
Main idea in one sentence:
Accounting is
providing information for decision-makers either inside or outside a company.
Another
trade-off society faces is between efficiency and equity. Efficiency means that
society is getting the most it can from its scarce resources. Equity means that
the benefits of those resources are distributed fairly among society’s members.
In other words, efficiency refers to the size of the economic pie, and equity
refers to hoe the pie is divided. Often, when government policies are being designed,
these two goals conflict.
Main
idea/summary :
Efficiency/equity
trade off
These can
conflict
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