Financial Accounting > EXAMs > Chapter 1: Accounting: Information for Decision Making. question and answers (All)

Chapter 1: Accounting: Information for Decision Making. question and answers

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Describe the four-step framework for decision making · Step 1: Specify the decision problem, including the decision maker’s goals. · Step 2: Identify Options · Step 3: Measure benefits and cos ... ts to determine the value of each option o Opportunity Cost: Value of the next best alternative · Step 4: Make the Decision – Option with Highest Value Compare individual and organizational decision making · Individual Goals might differ from Organization goals, leading to actions that are not in the firm’s best interest. Individual goals might have several factors · Organizational Goals o Group of individuals engaged in a collectively beneficial mission o More focused goals – (Usually to maximize profit) o Example: Public company, owned by shareholders, goal is to maximize shareholder value Relate planning and control decisions to the four stages of the PIER cycle · Planning Decisions o Choices about acquiring and using resource to deliver products and services to customers o Specifies actions required to achieve a goal o Examining the future decisions · Control Decisions o Motivating, Monitoring, and evaluation performance o Examining Past decisions · PIER Cycle: Planning and Control Cycle – Plan, Implement, Evaluate, and Revise o Can happen in seconds or a months o Example:  Opening a new plant (plan) - Plan  Acquiring appropriate resources (implementing)  Monitor success – (Evaluate)  If necessary, acquire more resources, etc. (Revise) – Control Differentiate between managerial accounting and financial accounting · Financial Accounting – aims to satisfy the information needs of decision makers outside the firm o Follows GAAP (in US) defined by Financial Accounting Standards Board (FASB) & European and Asian Firms follow Internation Standards Board. · Managerial Accounting – Aims to satisfy the information needs of decision makers inside the firm o Decide: products and services to offer, prices, equipment, who to hire, salaries o Employees have greater access to information o Evaluates benefits and cots of decision options [Show More]

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