Critical review of book and article / Accounting Information Support Decision Making

1. The structure of this paper content
Introduction
Background and Summary
Study Research
Brief conclusion
References
Critical review of book and article / Accounting Information Support Decision Making
Introduction
This section to illustrate what is accounting and what is subtitle branches associated with it to serve
decision making. Accounting is the art and science of evaluate actions that have financial influence, by
records, classify and interpret the results. And the financial information that can be extract from financial
statements can helps to increase competition, and control costs, and decrease tax expenses. So, cost
Accounting field needs financial information (FI)*1
to forecast operation costs. Tax accounting needs
financial accounting to analysis the effect of tax result on any purpose decision. Managerial accounting
uses (FI) historical data and forecasting data to plan future opportunities. Operational Auditing collect’s
evidences from (FI) to determine the productivity improvement. What’s more, we can use (FI) to support
non- financial actions.
Backgrounds &summary
According to Financial Accounting principles Book, there some important assumptions taking on
consideration when we take about using (FI) like continuously and consistency associated with general
principles like matching( revenue with their expenses) and revenue recognition ( the time that earned).(FI)
can be wildly use by investors to determine the risk of their investments. Indeed the creditors can use (FI)
to determine the suitable return and ability to repay of the firms. However, we can show the organizations
performance by show data on financial statements, include basic financial statements.
First, Net income statement which merge another subtitle statement (operation income), summarizing the
result of organization performance (profit) which is a very important tool to measure the Administration
performance, help illustrate forecast the future cash (periodic). What’s more FI can provide alternatives
process to solve any problems leading to better tackle for inventory but without ignore consistency with
*Financial Information (FI)

2. adequate disclosure indicate changing cost methods(FIFO,LIFO,WA)*because some ratio influence with
the way we use this methods, especially on operating ratio and liquidity ratio as we’ll explain latter.
From the important elements on income statement is the sales (Revenue) we must becarfule about
decrease sales by their allowance, return and discount associated with it benefit from using sales a
standard basis in any analytical process. Another element is the cost of goods sold with determining
which product cost (variable cost in general) allocated to it. Deprecation or amortization expenses (which
is distribute the cost of the asset to the operating period), can be strategic tool impact the number appear
on the income statement by which methods we use. For instance, straight line method distribute the cost
with equal way, while using accelerated deprecation distribute the cost with more account on the early
years comparison of the sum of digits method is the opposite , so it can influence number of tax of the
same period. Period cost (selling, distribution, administration cost) the ratio of this cost to sales use to
mentors and control and make any decision relating. Other expenses and revenue non-operating effect
cash flow ratio as we discuss latter.*
Second, Balance sheet is the main form that content chart of available sources (fixed assets + current
assets) allocated to available resources (obligation + capital) to evaluate administration performance.
The elements appear on the balance sheet can use to analysis liquidity or determine finance and
investment purpose, until for operating analysis. So current assets help management to plan identify
which activity meet organization object, implement, measure and develop the result of this activities.
For example, account receivable allow us to figure out bad debt when we plan our production cycle.
Inventory as we explain, what methods we use is accurately impact the number appear on the balance
sheet and income statement for analytical purpose to take decision about inventory cycle or which
suppliers and how many intermediate to use, time and quality to meet demand and customers’
expectations. If want to maximize contribution margin (sales-cost of goods sold) we quota goods sold by
using (First in- First out), if we want to reduce operating income we use (last in-first out). For the end
inventory using the Market or cost less method with three different ways, each product, or each batch, or
all the product, each way give us different number.
product Cost per unit Market price
per unit
Total cost Total market cost less cost
A10 8 9 80=10*8 90=10*9 80
B5 6 5 30=5*6 25=5*5 25
Gross-sum 120 115 105
Why that is important? The answer inventory ratio, debt ratio and equity ratio.
Note, classify the investment, wither purchased or bought, decided where it appear. So far, what ratio its
influence.
Other elements, account payable, notes payable (liabilities) long term debt influence liquidity, debt ratio.
Intangible assets if they internal develop their no recognize for it, unless purchase, they increase the total
assets amount impact the ratio tied to assets, while their cost change and affect with quality, customers’
satisfaction.
*Financial Information (FI)

3. Thirdly, Cash flow Stat. and Equity Stat provide support to decisions, illustration the capability of the
company to have positive cash flow, the ability to pay their obligations, dividends, and planning finance
need.
According to the accounting principles there some other financial tools like, Vertical analysis which
describes ratio of any number on the F.Stat. to anther primary number, as like intangible assets to the
total assets or operating expenses to the total net sales, to measure the relationship between two or
more component and compare result with previous periods or industrial standard. Horizontal Analysis
provides information about specific element for more than one period, which paths its follow or the
fluctuation within series of periods, earning trend and stability.
Finally, both writers of the” Introduction of accounting principles” and the article of “Comparison of
Management Accounting and Financial Accounting”. Summary well- known and concentration. Using
acknowledge to state the main points. The last phase of the article, indicate that financial reports are have
predictive value to make decisions or investment and FI, the branch of accounting deals primary with
exclusive management use outside and inside the organization.
Some ratio and their meanings:
Net Working Capital = current assets (cash&equlivent +Net account receivable +inventory + prepaid
expenses) _ current liabilities (account&notes payable+unearned revenue), clarify the ability of the
organization to pay short- term obligations from short-term assets (liquidity indictor).
Current Ratio = current assets/ current liabilities, indicate that equilibrium between both currents more
useful to avoid difficult pay or less profitability.
Quick Ratio is the same like Current Ratio without inventory, more accurate ratio than others liquidity
ratio.
Ratio to finance purpose, debt to assets ratio, equity to total debt, reflect the ability to pay company long-
term obligations or cover interest installments, top managers interest with this kind of ratio, when they
decide finance plan for the long term, until short term, for example to add new line or purchase asset,
measure and control performance and allocate resources to the cost cycle, determining financial budget
and debt profitability.
Ratio for investment purpose, as Price Earnings Ratio (stock price/ net income), demonstrate the ability of
the company to growth and use dividends to finance business opportunities, improve market share, and
acquire new product process.
Ratio for analysis operation income, account receivable (A.R) turnover (unpaid sales/average A.R)
measure trend of cash flow, and use when managers determine allowance for uncorrectable debt,
percentage of bad debt or forecast sales. However, there more than one Ratio to demonstrate the impact
of taking decisions about delivery time, quality, determine capacity or volume and suppliers’ cycle, like
average collection ratio(360/A.R.T), inventory turnover(cost of goods sold/ average storage), and average
storage period(360/I.T). Whereas return on assets* use in case allocated resources for sources to
increase process productivity and determine the require demand to achieve.
Study Research
• Measuring the effect of the strategic tools of management accounting on improving financial
performance on industrial public shareholding companies.2011
*Financial Information (FI)

4. •
• The role of the financial analyst in dealing with accounting and the analysis of descriptive information
that doesn’t show in the financial statements.
•
• The effect of company size and type of its on the extent of accounting disclosure at annual financial
reports of Jordanian public shareholding companies.2005-2006
•
•
•2001
•2004
•1999.
As a result some studies support that FI important when make judgment, but one of the weakness’ point
about it making assumptions relating to their study research, they sometimes make to prove their points.
Conclusion
The critical review has evaluate the” Introduction of accounting principles” and the article of Comparison
of Management Accounting and Financial Accounting. The theories that the authors include on the book
and the article did good job of explain the relationships among financial data and decision making. They
use technical and logical sequence and appropriate language. May it harder for average reader to
understand some point.
References
Comparison of Management Accounting and Financial Accounting. Colin Dury, 2007.
Library resources.
” Introduction of accounting principles” 2005
*Financial Information (FI)

5. Managerial Accounting Project
Mentation to our project to make Critical Review, I noticed that depend on my background ,I familiar with
financial information, so my main topic is” How financial information support Managerial Accounting
“when I go with it I illustrate some definition of accounting system, financial statement and some ratio,
demonstrate other parties opinion and how that support decision making.
*Financial Information (FI)

6. Managerial Accounting Project
Mentation to our project to make Critical Review, I noticed that depend on my background ,I familiar with
financial information, so my main topic is” How financial information support Managerial Accounting
“when I go with it I illustrate some definition of accounting system, financial statement and some ratio,
demonstrate other parties opinion and how that support decision making.
*Financial Information (FI)