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1. Accounting & Finance for
Managers
Department of Accounting
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2. Nature of the Course
• It has THREE Independent Parts:
Part I: Financial Accounting and Reporting
Part II: Management and Cost Accounting
Part III: Financial Management
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3. Course Contents:
Part I: Introduction
Part II: Summary of accounting process
Part III: Management Accounting
Part IV: Financial Management
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4. Accounting: Information for
Decision Making
Part
I Chapter Contents:
 Introduction
 Accounting Defined . . .
 Accounting As An Information System
 Decision Makers: The Users of Accounting
Information
 Financial Vs Management Accounting
 The Foundation of accounting Principles
 Types of Business Organization
 Business Goals, Activities, & Performance Measures
 Basic Functions of an Accounting System
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5. Communicate
Nature of Accounting
An information system whose purpose is to . . .
• Information about an economic entity to
those with an interest in the financial affairs
of the entity.
Collect
Identify Measure
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6. Accounting is the process of measuring, interpreting,
and communicating financial information to support
internal and external business decision making.
- Measuring??
- Interpreting?? and
- Communicating??
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7. Nature of Accounting . . .
• All organizations . . .
– Large or small;
– Manufacturing, merchandising or service;
– Profit or nonprofit . . .
have a need for accounting information
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8. Nature of Financial Accounting . .
.
• Thus, the primary role of accounting is to
provide useful information for the decision
making needs of:
• investors, lenders, owners, managers, and
others both inside and outside the
company.
• However, the need of internal and external
users often differ.
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9. Accounting as an Aid to Decision Making
• Accounting information is useful to anyone who makes
decisions that have economic results.
• Managers want to know if a new product will be
profitable.
• Owners want to know which employees are productive.
• Investors want to know if a company is a good
investment.
• Creditors want to know if they should extend credit,
how much to extend, and for how long.
• Government regulators want to know if financial
statements conform to requirements.
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10. 9/20/2022 10
Who are the

11. Accounting Environment
For those who lack
direct access to the
information generated
by the internal
operations of a
company.
Concepts, principles, and
procedures known as
Generally Accepted Accounting
Principles (GAAP) were
developed to meet the
needs of external users.
Financial Accounting . . .
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External Accounting Information . . .

12. Accounting Environment . . .cntd
Developed to
meet the needs
of management.
Information that
aids planning and
control.
Much of the
information is
confidential.
Management Accounting ???
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Internal Accounting Information

13. Management Accounting Vs Financial Accounting
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External Users
Financial accounting provides
external users with financial
statements.
Internal Users
Managerial accounting
provides information needs
for internal decision
makers.

14. Managerial vs Financial Accounting
Issue Managerial Financial
Primary Users Internal External
Purpose of
Information
Plan, Direct,
Control, Decide
Users make
investing and
lending, etc
decisions
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15. Managerial vs Financial Accounting
Issue Managerial Financial
Primary Accounting
Product
Internal Reports
useful to
Management
General Purpose
Financial
Statements
What is included? Defined by
Management
Determined by
GAAP
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16. Managerial vs Financial Accounting
Issue Managerial Financial
Underlying Basis of
Information
Internal and
External
Transactions, focus
on future
Based on historical
transactions with
external parties
Emphasis Data must be
relevant
Data must be
reliable and
objective
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17. Managerial vs Financial Accounting
Issue Managerial Financial
Business Unit Segments of the
business
Company as a whole
Preparation Depends on
management needs
Annually and
Quarterly
Verification Internal audit External audit
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18. • Generally accepted accounting principles (GAAP) encompass the
conventions, rules, and procedures for determining acceptable
accounting practices at a particular time.
• They are pronouncements by designated authoritative bodies that
must be followed in all applicable cases.
• Accounting practices developed by respected bodies and
industries or that have evolved over time.
• International Accounting Standard Board (IASB) is primarily
responsible for evaluating, setting, or modifying IFRS.
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19. Conceptual Framework for Financial Reporting
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20. Need for a Conceptual Framework
Rule-making should build on and relate to an
established body of concepts.
Enables IASB to issue more useful and consistent
pronouncements over time.
Conceptual Framework
Conceptual Framework establishes the concepts that underlie financial
reporting.
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21. Development of a Conceptual Framework
IASB and FASB are working on a joint project to develop a
common conceptual framework
Framework will build on existing IASB and FASB frameworks.
Project has identified the objective of financial reporting
(Chapter 1) and the qualitative characteristics of decision-
useful financial reporting information.
Conceptual Framework
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22. Three levels:
First Level = Basic objective
Second Level = Qualitative characteristics and elements of financial
statements
Third Level = Recognition, measurement, and disclosure concepts
Conceptual Framework
Overview of the Conceptual Framework
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23. ASSUMPTIONS
1. Economic entity
2. Going concern
3. Monetary unit
4. Periodicity
5. Accrual
PRINCIPLES
1. Measurement
2. Revenue recognition
3. Expense recognition
4. Full disclosure
CONSTRAINTS
1. Cost
2. Materiality
OBJECTIVE
Provide information
about the reporting
entity that is useful
to present and potential
equity investors,
lenders, and other
creditors in their
ELEMENTS
1. Assets
2. Liabilities
3. Equity
4. Income
5. Expenses
Illustration Framework
for Financial Reporting
First level
Second level
Third
level
QUALITATIVE
CHARACTERISTICS
1. Fundamental
qualities
2. Enhancing qualities

24. “To provide financial information about the reporting entity
that is useful to present and potential equity investors, lenders,
and other creditors in making decisions in their capacity as
capital providers.”
First Level: Basic Objective
OBJECTIVE
 Provided by issuing general-purpose financial statements.
 Assumption is that users have reasonable knowledge of business
and financial accounting matters to understand the information.
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25. IASB identified the Qualitative Characteristics of accounting information
that distinguish better (more useful) information from inferior (less useful)
information for decision-making purposes.
Second Level: Fundamental Concepts
Qualitative Characteristics of Accounting Information
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26. Illustration Hierarchy of
Accounting Qualities
Second Level: Fundamental Concepts
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27. Fundamental Quality - Relevance
Relevance is one of the two fundamental qualities that make
accounting information useful for decision-making.
Second Level: Fundamental Concepts
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28. Fundamental Quality – Faithful Representation
Faithful representation means that the numbers and
descriptions match what really existed or happened.
Second Level: Fundamental Concepts
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29. Enhancing Qualities
Distinguish more-useful information from less-useful
information.
Second Level: Fundamental Concepts
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30. ASSUMPTIONS
1. Economic entity
2. Going concern
3. Monetary unit
4. Periodicity
5. Accrual
PRINCIPLES
1. Measurement
2. Revenue recognition
3. Expense recognition
4. Full disclosure
CONSTRAINTS
1. Cost
2. Materiality
OBJECTIVE
Provide information
about the reporting
entity that is useful
to present and potential
equity investors,
lenders, and other
creditors in their
ELEMENTS
1. Assets
2. Liabilities
3. Equity
4. Income
5. Expenses
Illustration Framework
for Financial Reporting
First level
Second level
Third
level
QUALITATIVE
CHARACTERISTICS
1. Fundamental
qualities
2. Enhancing
qualities
Basic Elements

31. Second Level: Basic Elements
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32. Third Level: Recognition, Measurement, and Disclosure
Concepts
These concepts explain how companies should recognize,
measure, and report financial elements and events.
ASSUMPTIONS
1. Economic entity
2. Going concern
3. Monetary unit
4. Periodicity
5. Accrual
PRINCIPLES
1. Measurement
2. Revenue recognition
3. Expense recognition
4. Full disclosure
CONSTRAINTS
1. Cost
2. Materiality
Recognition, Measurement, and Disclosure Concepts
Illustration
Framework for
Financial Reporting
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33. 1. Economic Entity – company keeps its activity separate from its owners and
other business unit.
2. Going Concern - company to last long enough to fulfill objectives and
commitments.
3. Monetary Unit - money is the common denominator.
4. Periodicity - company can divide its economic activities into time periods.
5. Accrual Basis of Accounting – transactions are recorded in the periods in
which the events occur.
Third Level: Assumptions
Basic Assumptions
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34. Measurement
Cost is generally thought to be a faithful representation of the amount paid
for a given item.
Fair value is “the amount for which an asset could be exchanged, a
liability settled, or an equity instrument granted could be exchanged,
between knowledgeable, willing parties in an arm’s length transaction.”
IASB has taken the step of giving companies the option to use fair value as
the basis for measurement of financial assets and financial liabilities.
Third Level: Principles
Principles
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35. Revenue Recognition - revenue is to be recognized when it
is probable that future economic benefits will flow to the company
and reliable measurement of the amount of revenue is possible.
Third Level: Principles
LO 7 Explain the application of he basic principles of accounting.
Illustration Timing of Revenue
Recognition
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36. Expense Recognition - outflows or “using up” of assets or
incurring of liabilities (or a combination of both) during a period
as a result of delivering or producing goods and/or rendering
services.
Third Level: Principles
Illustration Expense
Recognition
“Let the expense follow the revenues.”
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37. Full Disclosure – providing information that is of sufficient
importance to influence the judgment and decisions of an
informed user.
Provided through:
Financial Statements
Notes to the Financial Statements
Supplementary information
Third Level: Principles
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38. Cost – the cost of providing the information must be weighed
against the benefits that can be derived from using it.
Materiality - an item is material if its inclusion or omission would
influence or change the judgment of a reasonable person.
Third Level: Constraints
Constraints
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39. Summary of
the Structure
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40. Type of Business Organizations
We can classify business organizations in
various types based on:
a. Ownership
b.Activities
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41. a. Based on Ownership
Sole Proprietorship Partnership Corporation
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42. b. Activity performed
(1) Service businesses
 Ethiopian Air Lines (transportation services)
 Ethio-telecom (Telecommunication services)
 Rift valley University (Educational Services) etc
(2) Merchandising businesses
 Shewa Super Market
 KAKI General Trading etc
(3) Manufacturing businesses
 Debra Cement Factory
 Kombolcha Textile Factory etc. . .
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43. Business Goals and Activities
Business Goals
1. Profit Maximization .. . Wealth Maximization
Profit maximization means increasing profit as much as
possible or producing a level of output which brings the
most profit for the business. . . for private sector
. . . . short term Vs long term profit maximization
2. Liquidity
A business must have enough funds available to pay
debts when they are due. . . . so as to satisfy the
equities of creditors.
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44. Business Goals, Activities . . .
Business Goals Business Activities
Profitability
Liquidity
Financing operating
Investing
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45. The three Business Activities . . .
1) Financing Activities:
 Obtaining capital from owners and creditors
 Repaying creditors and a return to owners.
2) Investing Activities:
 Spending the capital it receives in ways that are productive
and will help the business achieve its objectives.
 Buying and selling long-term assets to be used in the business.
3) Operating Activities:
 Selling of goods and services to customers.
 Employing managers and workers, buying and producing goods
and services, and paying taxes.
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46. Business Goals, Activities Cont’d)
Performance Measures:
 Indicate whether or not managers are achieving the business
goals and if they are managing business activities well.
 Performance measures include:
 Earned income or profit
 Cash flow
 Ratio of expenses to revenues
 Ratio of money owed to total resources controlled.
Note: Managers should understand these measures.
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47. End of Part I
Part II: SUMMARY OF ACCOUNTING
PROCESS