Financial Accounting Information As An Aid To Management Decision Making
Financial accounting information serves as a crucial aid to management decision making by providing a comprehensive snapshot of a company’s financial health, performance, and position. Through financial statements such as balance sheets, income statements, and cash flow statements, managers gain insights into revenue generation, expenditure patterns, liquidity, and profitability. These insights enable informed decisions regarding resource allocation, investment strategies, cost management, and overall business planning. Additionally, financial accounting information facilitates comparisons with industry standards, competitor performance, and historical data, empowering managers to identify trends, assess risks, and devise effective strategies to drive organizational growth and sustainability. Ultimately, leveraging financial accounting information equips management with the necessary tools to make timely, well-informed decisions that align with the company’s strategic objectives and enhance its long-term success.
Decision-making can be viewed as the very fabric of which organized activities are made. This partly depends on the amount of information supplied to management.
This study is aimed at finding out information supplied by the accountants through financial accounting. The study revealed the information derived from financial statement, the extent to which these accounting information can be used and also used in management decisions by business organizations.
In reaching at our conclusion, a literature review was conducted and ratio analysis was used in analysis financial statements. The result of the study show that ratios analysed give one an idea of the financial status of an organization and financial statement are prepared in such a way that interested parties can interpret and derive the information necessary for their various needs.
In further of the research objectives recommendations were made which when implemented, the researchers hope will be of help to management in making decisions using financial accounting information. This recommendations were based on research findings and should be noted that they are not exhaustive.
In conclusion, the researchers believe that this study has achieved its pre-determined objective by identifying various ways by which the financial accounting information can be used in decision making and where there is good analysis and interpretation of financial accounting information it will lead to sound decision being made.
PAGES
TITLE PAGE
APPROVAL PAGE
ABSTRACT
ACKNOWLEDGEMENT
DEDICATION
CHAPTER ONE
INTRODUCTION
1.1 BACK GROUND OF THE STUDY
1.2 STATEMENT OF THE PROBLEM
1.3 PURPOSE/OBJECTIVE OF THE STUDY
1.4 SIGNIFICANCE OF THE STUDY
1.5 LIMITATIONS OF THE STUDY
CHAPTER TWO
REVIEW OF RELATED LITERATURE
CHAPTER THREE
RESEARCH DESIGN AND METHODOLOGY SOURCE
3.1 SOURCES OF DATA (SECONDARYS)
3.2 LOCATION OF DATA
3.3 METHODS OF DATA COLLECTION (LITERATURE WORK ONLY)
CHAPTER FOUR
FINDINGS
CHAPTER FIVE
RECOMMENDATION AND CONCLUSION
BIBLIOGRAPHY
DEFINATION 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.
Financial Accounting Information As An Aid To Management Decision Making:
Financial accounting information plays a crucial role as an aid to management decision-making in various ways. It provides valuable data and insights that help managers make informed choices to achieve their organizational goals. Here are several ways in which financial accounting information supports decision-making in management:
- Performance Evaluation: Financial statements, such as the income statement and balance sheet, provide an overview of a company’s financial performance. Managers can assess profitability, liquidity, and solvency to gauge how well the organization is doing. This information is vital for evaluating the effectiveness of past decisions and planning for the future.
- Budgeting and Forecasting: Financial accounting data is instrumental in the budgeting and forecasting process. Managers use historical financial data to create budgets and make future financial projections. These budgets and forecasts guide resource allocation and strategic planning.
- Cost Analysis: Financial accounting information helps managers analyze the cost structure of their organization. They can determine the cost of goods sold, operating expenses, and other costs associated with different activities or products. This analysis aids in pricing decisions, cost reduction strategies, and identifying areas for efficiency improvement.
- Investment Decisions: Managers often need to decide whether to invest in new projects or assets. Financial accounting information, including cash flow projections and return on investment calculations, helps assess the potential risks and returns associated with these investments.
- Credit and Financing Decisions: When seeking external financing or negotiating credit terms, management relies on financial statements and ratios to demonstrate the company’s creditworthiness. Lenders and investors use these reports to assess the risk of providing funds.
- Strategic Planning: Financial accounting data informs strategic decisions such as expanding into new markets, diversifying product lines, or mergers and acquisitions. Managers analyze financial performance and market conditions to make strategic choices aligned with the company’s long-term objectives.
- Tax Planning: Financial accounting information is crucial for tax planning. Managers must ensure compliance with tax regulations while minimizing tax liabilities. Accurate financial data helps in tax strategy development.
- Performance Measurement: Key performance indicators (KPIs) derived from financial accounting information allow managers to track progress toward strategic goals. Metrics like return on investment (ROI), net profit margin, and inventory turnover help assess performance over time.
- Risk Assessment: Financial accounting information also assists in identifying and managing financial risks. Managers can assess the impact of various risks on the company’s financial health and implement risk mitigation strategies accordingly.
- Stakeholder Communication: Timely and accurate financial reports enhance communication with various stakeholders, including investors, creditors, and employees. Transparent reporting builds trust and confidence in the organization.
In summary, financial accounting information is a fundamental tool that empowers managers to make informed decisions. It provides a historical and current snapshot of an organization’s financial health and performance, which is essential for planning, control, and strategic management. It enables managers to allocate resources efficiently, assess the impact of decisions, and navigate the complex financial landscape effectively.