GEB1101: M2-C15: Using Management & Accounting Information

5 Areas of Management (Managers)

1. Finance 2. Operations 3. Marketing 4. Human Resources 5. Administration

Step 5: Presenting Information

An MIS must be capable of presenting information in a usable form Method of presentation—reports, tables, graphs, or charts

Executive information system (EIS)

Computer-based system that facilitates and supports the decision-making needs of top managers and senior executives by providing easy access to both internal and external information.

2 Types of Data Sources

External Internal

Financial Managers

Finances 1. Most concerned with a firm's finances. 2. Ensure that the firm's managers and employees, lenders and suppliers, stockholders and potential investors, and government agencies have the information they need to measure the financial health of the firm

Today, much of the pressure on corporate executives to "cook" the books is driven by the desire to look good to Wall Street analysts and investors.

If a company reports sales and profit figures that are lower than expected, the company's stock value can drop dramatically. Greed—especially when executive salaries and bonuses are tied to a company's stock value—is another factor that can lead some corporate executives to use unethical accounting methods to inflate a firm's sales revenues and profit amount. Victims - the ones that hurt when companies (and their accountants) report inaccurate or misleading accounting information often are not the high-paid corporate executives. It's the employees who lose their jobs when the company files for bankruptcy, as well as the money they invested in the company's retirement program. Investors, lenders, and suppliers who relied on fraudulent accounting information in order to make a decision to invest in or lend money to the company also usually experience a loss.

If an accountant determines that a firm's financial statements present financial information fairly and conform to GAAPs, then he or she will issue the following statement:

In our opinion, the financial statements ... present fairly, in all material respects the financial position of the company ... in conformity with generally accepted accounting principles.

What happens if a business has a management information system that is too small?

In some firms, a tendency to save on initial costs may result in a system that is too small or overly simple. Such a system generally ends up serving only one or two management levels or a single department. Managers in other departments "give up" on the system as soon as they find that it cannot process their data.

Desktop publishing

Users can combine text and graphics in professional reports, newsletters, and pamphlets.

The fifth step in the accounting cycle is a. preparing the financial statements. b. preparing the trial balance. c. analyzing source documents. d. recording the transactions. e. posting transactions

a. preparing the financial statements.

A firm's operating expenses are all business costs including cost of goods sold. a. True b. False

b. False

In an economic downturn, management may need to depend on "internally generated cash" to operate the business. Which of the following would be considered a source of internally generated cash? a. Adjusting component and/or raw material inventory replenishment strategies b. Selling excess merchandise inventory at a discounted price c. All of these statements are correct. d. Collecting outstanding accounts receivable

c. All of these statements are correct.

Last year a furniture store had an average inventory of $40,000, and its cost of goods sold was $200,000. How many times did the store replace its inventory last year? a. Three times b. Two times c. Five times d. Four times e. It can't be determined with this information.

c. Five times

The primary user group that confirms tax liabilities are a. suppliers. b. stockholders and potential investors. c. management. d. lenders. e. government agencies.

e. government agencies.

generally accepted accounting principles (GAAPs)

have been developed to provide an accepted set of guidelines and practices for U.S. companies reporting financial information and the accounting profession.

Cisco Systems

is a company known for transforming how people connect, communicate, and collaborate. The technology giant is also a respected innovator that develops state-of-the-art equipment needed by employees, managers, and individuals to manage knowledge and information.

information overload

the amount of worthless information, junk e-mails, and advertising that contribute to information overload.

Step 2: Storing Data

the method chosen to store data depends on the size and needs of the organization. Small businesses may enter data and then store them directly on an employee's computer. medium-sized to large businesses store data in a larger computer system and provide access to employees through a computer network.

Step 1: Collecting Data

1-A firm's employees, with the help of an MIS system, must gather the data and information needed to establish the firm's database. 2-The database should include all past and current data that may be useful in managing the firm. Clearly, the data entered into the system must be relevant to the needs of the firm's managers. 3-And perhaps most important, the data must be accurate. Irrelevant data are simply useless; inaccurate data can be disastrous. There are two data sources: internal and external.

Common FAQ's for Firm Accountants

1-How much profit did a business earn last year? 2-How much tax does a business owe the Internal Revenue Service? 3-How much cash does a business have to pay lenders and suppliers?

Which of the following firms has been convicted or accused of accounting fraud?

1-Lehman Brothers (Banking in the United States) 2-Sino-Forest (Forestry Operations in China) 3-Fannie Mae (Home Mortgages in United States) 4-Autonomy Software (Software Development in Britain) 5-All of the above. The accounting problems at these companies—and similar problems at even more companies—have forced many investors, lenders and suppliers, and government regulators to question the motives behind fraudulent and unethical accounting practices.

Internal/External Cautions

1. The cost of obtaining data from some external sources, such as marketing research firms, can be quite high. 2. Outdated or incomplete data usually yield inaccurate information. 3. Although computers generally do not make mistakes, the people who use them can make or cause errors. When data (or information) and your judgment disagree, always check the data.

Current Business Application Software Used to Improve Productivity

1. Word Processing 2. Desktop Publishing 3. Accounting 4. Database Management 5. Graphics 6. Spreadsheets

Read and interpret a balance sheet.

A balance sheet (sometimes referred to as a statement of financial position) is a summary of a firm's assets, liabilities, and owners' equity accounts at the end of an accounting period. This statement must demonstrate that the accounting equation is in balance. On the balance sheet, assets are categorized as current, fixed, or intangible. Similarly, liabilities can be divided into current liabilities and long-term liabilities. For a sole proprietorship or partnership, owners' equity is shown as the difference between assets and liabilities. For corporations, the owners' equity section reports the values of stock and retained earnings.

Does this executive trust the numbers?

A firm's managers and employees must have accurate accounting information to make decisions and plan for the future. Other groups including investors, lenders, and suppliers also must "trust" accounting information to determine the financial health of a company. In fact, without accurate accounting information, the numbers are just that numbers.

Knowledge Management (KM)

A firm's procedures for generating, using, and sharing the data and information. Typically, data, information, databases, and KM all become important parts of a firm's management information system.

Discuss management's information requirements.

A management information system (MIS) is a means of providing managers with the information they need to perform their jobs as effectively as possible. The purpose of an MIS (sometimes referred to as an information technology system or simply IT system) is to distribute timely and useful information from both internal and external sources to the decision makers who need it. The specific types of information managers need depend on their area of management and level within the firm. The size and complexity of an MIS must be tailored to the information needs of the organization it serves.

Database

A single collection of data and information stored in one place that can be used by people throughout an organization to make decisions.

Explain why accurate accounting information and audited financial statements are important.

Accounting is the process of systematically collecting, analyzing, and reporting financial information. It can be used to answer questions about what has happened in the past; it also can be used to help make decisions about the future. The purpose of an audit is to make sure that a firm's financial statements have been prepared in accordance with generally accepted accounting principles. To help ensure that corporate financial information is accurate and in response to the accounting scandals that surfaced in the last few years, the Sarbanes-Oxley Act was signed into law. This law contains a number of provisions designed to restore public confidence in the accounting industry. Although many people think all accountants do the same thing, typical areas of expertise include managerial, financial, cost, tax, government, and not-for-profit. A private accountant is employed by a private firm. A public accountant performs accounting work for various individuals or firms on a fee basis. Most accounting firms include on their staffs at least one CPA.

Who are the people who use information?

Although the primary users of information are a firm's managers and employees, parties outside the organization—lenders, suppliers, stockholders, and government agencies—are also interested in the firm's information. In fact, both managers and employees and outside groups often examine a firm's annual report to determine the financial health of a firm.

Audit

An examination of a company's financial statements and the accounting practices that produced them. The purpose of an audit is to make sure that a firm's financial statements have been prepared in accordance with generally accepted accounting principles (GAAPs) Although an audit and the resulting report do not guarantee that a company has not "cooked" the books, it does imply that, on the whole, the company has followed GAAPs. Bankers, creditors, investors, and government agencies are willing to rely on an auditor's opinion because of the historically ethical reputation and independence of auditors and accounting firms. Without the audit function and GAAPs, there would be very little oversight or supervision. The validity of a firm's financial statements and its accounting records would drop quickly, and firms would find it difficult to obtain debt financing, acquire goods and services from suppliers, find investor financing, or prepare documents requested by government agencies.

Read and interpret an income statement.

An income statement is a summary of a firm's financial operations during the specified accounting period. On the income statement, the company's gross profit is computed by subtracting the cost of goods sold from net sales. Operating expenses and interest expense then are deducted to compute net income before taxes. Finally, income taxes are deducted to obtain the firm's net income after taxes.

External Sources of Data

Are customers, suppliers, financial institutions and banks, trade and business publications, industry conferences, online computer services, lawyers, government sources, and firms that specialize in gathering marketing research for organizations.

international Financial Reporting Standards (IFRS)

Created by the International Accounting Standards Board now used in more than 100 different countries around the world For multinational firms like Royal Dutch Shell, ExxonMobil, Walmart, and Toyota, the benefits of global accounting standards are huge because preparing financial statements and accounting records that meet global standards saves both time and money. According to many accounting experts, the United States is on a path toward the adoption of IFRS, the question is when

three different software applications to improve/speed the decision-making process for people at different levels within an organization

Decision-support system (DSS) Executive information system (EIS) Expert System

Human Resources Managers

Employees Must be aware of anything that pertains to a firm's employees. Key examples include current wage levels and benefits packages both within the firm and in firms that compete for valuable employees, current legislation and court decisions that affect employment practices, and the firm's plans for growth, expansion, or mergers.

Financial Accounting Standards Board (FASB)

Establishes and improves accounting standards for U.S. companies

Why Accounting Information Is Important

Executives, managers, and employees also rely on the firm's accounting system to provide needed financial information To improve the accuracy of a firm's accounting information and its financial statements, businesses rely on audits conducted by accountants employed by public accounting firms.

How important is management and accounting information for a successful business?

It would be extremely difficult to manage even a small business without management and accounting information.

2 Integration Benefits

Once data have been entered into an application in an integrated package, the data can be used in another integrated package without having to reenter the data. Once a user learns one application, it is much easier to learn another application in an integrated package. (Microsoft Office)

Information

One of the four major resources (along with material, human, and financial resources) managers must have to operate a business. when understood properly, produces knowledge and empowers managers and employees to make better decisions. is data presented in a form that is useful for a specific purpose. Example: Suppose that a HR manager wants to compare the wages paid to male and female EE over a period of five years. The manager might begin with a stack of computer printouts listing every person employed by the firm, along with each employee's current and past wages. The manager would be hard pressed to make any sense of all the names and numbers. Such printouts consist of data rather than information.

Chief Technology Officer

One of the main goals - Ensure that a firm has the equipment necessary to provide information the employees need to make effective decisions—at a reasonable cost.

Administrative Managers

Overall Management Responsible for the overall management of the organization. Thus, they are concerned with the coordination of information—just as they are concerned with the coordination of material, human, and financial resources. Must ensure that the information is used in a consistent manner throughout the firm. Must commit to the costs of updating the firm's MIS and providing additional training when necessary.

Marketing Managers

Product details and services by competitors. Need to have detailed information about a firm's products and services and those offered by competitors. Such information includes pricing strategies, new promotional campaigns, and products that competitors are test marketing. Information concerning the firm's customers, current and projected market share, and new and pending product legislation is also important to marketing managers.

Using relevant information results in better decisions...

Relevant Information = Better Intelligence and knowledge + Better Decisions are especially important because they can provide a competitive edge over competitors and improve a firm's profits.

Operations Manager

Sales (Present,future), Inventory (in progress,finished), Availability, Cost of Resources Concerned with present and future sales levels, current inventory levels of work in process and finished goods, and the availability and cost of the resources required to produce products and services.

Describe business activities that affect a firm's cash flow.

Since 1987, the Securities and Exchange Commission (SEC) and the Financial Accounting Standards Board (FASB) have required all publicly traded companies to include a statement of cash flows in their annual reports. This statement illustrates how the company's operating, investing, and financing activities affect cash during an accounting period. Together, the cash flow statement, balance sheet, and income statement illustrate the results of past decisions and the business's ability to pay debts and dividends as well as to finance new growth

Step 4: Processing Data

Some data are used in the form in which they are stored, whereas other data require processing to extract, highlight, or summarize the information they contain. Data Processing - is the transformation of data into a form that is useful for a specific purpose.

5 Areas of Management (Managers/Responsibilities)

Suppose, for example, that General Electric (GE) is designing a new plant in China to manufacture energy-efficient light bulbs that will open in five years. GE's Ops management will want answers to many questions: 3. Is the capacity of the plant consistent with marketing plans based on sales projections? (Marketing) 4. Will human resources managers be able to recruit U.S. employees with the appropriate skills who are willing to relocate to a foreign country and hire and train Chinese workers to staff the plant? (HR) 1. And do sales projections indicate enough income to cover the expected cost of the plant? (Finance) 5. Next, administrative managers must make sure that all managers and employees are able to use the information technology that is available. (Admin)

Summarize how managers evaluate the financial health of a business.

The firm's financial statements and its accounting information become more meaningful when compared with information for competitors, for the industry in which the firm operates, and corresponding information for previous years. Such comparisons permit managers, employees, lenders, investors, and other interested people to pick out trends in growth, borrowing, income, and other business variables and to determine whether the firm is on the way to accomplishing its long-term goals. A number of financial ratios can be computed from the information in a firm's financial statements. These ratios provide a picture of a firm's profitability, its ability to pay its debts, and how often it sells its inventory. Like the information on the firm's financial statements, these ratios can and should be compared with information for competitors, for the industry in which the firm operates, and corresponding information for previous years.

Outline the five functions of an information system.

The five functions performed by an MIS system are collecting data, storing data, updating data, processing data into information, and presenting information. Data may be collected from internal sources and external sources. An MIS must be able to store data until they are needed and to update them regularly to ensure that the information presented to managers and employees is accurate, complete, and timely. Data processing is the MIS function that transforms stored data into a form useful for a specific purpose. Finally, the processed data (which now can be called information) must be presented for use. Verbal information generally is presented in the form of a report. Numerical information most often is displayed in graphs, charts, or tables. In addition to the five basic functions performed by an MIS, managers and employees can use a decision-support system (DSS), an executive information system (EIS), expert system, and business application software to make decisions and to report data and information.

Examine how information can reduce risk when making a decision.

The more information a manager has, the less risk there is that a decision will be incorrect. Information produces knowledge and empowers managers and employees to make better decisions. Because of the volume of information they receive each day and their need to make decisions on a daily basis, business people use information rules to shorten the time spent analyzing choices. Information rules emerge when business research confirms the same results each time it studies the same or a similar set of circumstances. Although many people use the terms data and information interchangeably, there is a difference. Data are numerical or verbal descriptions that usually result from some sort of measurement. Information is data presented in a form that is useful for a specific purpose. A database is a single collection of data and information stored in one place that can be used by people throughout an organization to make decisions. Although databases are important, the way the data and information are used is even more important. As a result, management information experts now use the term knowledge management (KM) to describe a firm's procedures for generating, using, and sharing the data and information.

How do Employees Use a Management information system?

To provide information, an MIS must perform five specific functions. It must 1. collect data, 2. store the data 3. update the data 4. process the data into information 5. present the information to users

What happens if a business has a management information system that is too large?

Unused capacity and complexity do nothing but increase the cost of owning and operating the system. In addition, a system that is difficult to use probably will not be used at all.

Graphics

Users can display and print pictures, drawings, charts, and diagrams.

Database management

Users can electronically store large amounts of data and transform the data into information.

Spreadsheets

Users can organize numerical data into a grid of rows and columns

Current Business Application Software Used to Improve Productivity

Users can prepare and edit written documents and store them in the computer or on a memory device.

Accounting

Users can record routine financial transactions and prepare financial reports at the end of the accounting period.

Business Reports

Verbal information may be presented in list or paragraph form. Employees often are asked to prepare formal business reports. A typical business report includes 1. An introduction - Sets the stage for the remainder of the report, describes the problem to be studied in the report, identifies the research techniques that were used, and previews the material that will be presented in the report 2. The body of the report - Objectively describe the facts that were discovered in the process of completing the report. Provides a foundation for the conclusions and the recommendations. 3. The conclusions - Atatements of fact that describe the findings contained in the report. Conclusions should be specific, practical, and based on the evidence in the report. 4. The recommendations - Suggestions on how the problem might be solved. Specific, practical, and based on the evidence.

How Much Should Businesses Know About Internet Users?

When you click to conduct an online search or to download a digital coupon, businesses can follow your electronic movements. When you click to conduct an online search or to download a digital coupon, businesses can follow your electronic movements. Privacy advocates worry about the potential for identity theft and the possibility that data may be shared without consent. They also express concern that businesses might restrict access to some products based on what consumers do or say online. Businesses point out the benefits of collecting data to personalize website functionality based on each user's preferences and previous visits. They also look at behavioral data when planning new products and services.

statistic

a measure that summarizes a particular characteristic of an entire group of numbers.

Management's Information Requirements (MIS)

a system that provides managers and employees with the information they need to perform their jobs as effectively as possible. The purpose - To distribute timely and useful information from both internal and external sources to the managers and employees who need it Sometimes referred to as an information technology system or simply IT system Integrated database capable of receiving, organizing, summarizing, and calculating data and information and providing information to managers networked in the system. must be tailored to the needs of the organization it serves.

Accounts receivable turnover is the number of times the firm collects its accounts receivable in one year. a. True b. False

a. True

Cost accounting determines the expense of producing specific products and services. a. True b. False

a. True

Evaluating financial statements permits managers, lenders, suppliers, and investors to do all of the following except a. identify trends in sales and profits. b. retain a firm's earnings. c. analyze borrowing needs. d. determine whether the firm is on track with its long-term goals. e. identify business variables.

a. identify trends in sales and profits.

Portland Metro Advertising, Inc., has become a leader at understanding its market and using data and information in ways that are important and valuable to the firm. The management information team describes its process of generating, using, and sharing data and information as a. knowledge management. b. dataprocessing. c. an expert system. d. an MIS. e. an executive information system.

a. knowledge management.

There is pressure on publicly held companies to look good to Wall Street analysts and investors. Companies report their revenues, expenses, profits, and projects a. quarterly. b. every month. c. bi-annually. d. annually. e. every six months.

a. quarterly.

Step 3: Updating Data

an MIS must be able to update stored data regularly to ensure that the information presented to managers and employees is accurate, complete, and up-to-date. The frequency with which the data are updated depends on how fast they change and how often they are used. When it is vital to have current data, updating may occur as soon as the new data are available. (Macy's) Data and information may also be entered into a firm's data bank at certain intervals—every 24 hours, weekly, or monthly.

Data

are numerical or verbal descriptions that usually result from some sort of measurement. A description of an individual as a "tall, athletic person with short, dark hair" certainly would qualify as data. Example: Suppose that a HR manager wants to compare the wages paid to male and female EE over a period of five years. The manager might begin with a stack of computer printouts listing every person employed by the firm, along with each employee's current and past wages. The manager would be hard pressed to make any sense of all the names and numbers. Such printouts consist of data rather than information. Typical data include records pertaining to personnel, inventory, sales, and accounting.

Accountants are generally classified as either for-profit or non-profit accountants. a. True b. False

b. False

Analyzing source documents is a step in the accounting cycle that's usually performed only at the end of an accounting period. a. True b. False

b. False

GAAPs have been developed to provide guidelines for the majority of international companies. a. True b. False

b. False

Much of the accounting information of a firm is proprietary, meaning it is not shared with anyone outside the firm. a. True b. False

b. False

Net sales are the sales of goods and services after adjustments for permanent and temporary expenses are made. a. True b. False

b. False

Retained earnings are revenue minus expenses in a business. a. True b. False

b. False

The current ratio divides current assets by owners' equity. a. True b. False

b. False

Nearly a year ago MariElena acquired her first accounting job with an accounting firm after finishing her undergraduate degree in accounting and passing the CPA exam. While consulting with Oakland City Paving, MariElena quickly noticed the lack of accounting understanding not only by employees but also by most of the mid-level managers. Her recent education is a big help to the company and she's been approached by several of the managers to share some of her knowledge and understanding with other employees. The CEO has encouraged her to start a series of short, semi-formal sessions that share some of her accounting knowledge with others. MariElena thinks she will start with a brief discussion of her education and experience. MariElena is a _____ accountant and she has passed the _____ requirements in order to be a CPA. a. private; state b. public; state c. private; federal d. public; regional e. public; federal

b. public; state

According to the text, which of the following U.S. companies has been convicted or accused of accounting fraud? a. Bank of America b. Costco c. Lehman Brothers d. McDonalds e. Walmart

c. Lehman Brothers

integrated software

combines many functions in a single package. Integrated packages allow for the easy linking of text, numerical data, graphs, photographs, and even audiovisual clips. Example: A business report prepared using the Microsoft Office package, for instance, can include all these components.

Which of the following is not a component of the Sarbanes-Oxley Act? a. There is added whistle-blower protection. b. Public corporations must change lead auditing firms every five years. c. CEOs are liable for intentional violations of securities reporting requirements. d. It includes clear international audit procedures. e. Audit work papers must be maintained for five years.

d. It includes clear international audit procedures.

Nearly a year ago MariElena acquired her first accounting job with an accounting firm after finishing her undergraduate degree in accounting and passing the CPA exam. Whileconsulting withOakland City Paving, MariElena quickly noticed the lack of accounting understanding not only by employees but also by most of the mid-level managers. Her recent education is a big help to the company and she's been approached by several of the managers to share some of her knowledge and understanding with other employees. The CEO has encouraged her to start a series of short, semi-formal sessions that share some of her accounting knowledge with others. MariElena thinks a good place to start will be to clarify what the process of ___ entails: collecting, analyzing, and reporting financial information. a. depreciation b. journalizing c. auditing d. accounting e. bookkeeping

d. accounting

Taxes payable and salaries payable are examples of a. stockholders'equity. b. expenses. c. long-term liabilities. d. current liabilities. e. fixed assets.

d. current liabilities.

Having adequate cash balances to help a business survive in a down economy is critical. The financial ratio that would be most important to keep track of with this approach would be the: a. return on sales b. earnings per share c. inventory turnover ratio d. current ratio

d. current ratio

An information rule

emerges when research confirms the same results each time that it studies the same or a similar set of circumstances. emerges when research confirms the same results each time that it studies the same or a similar set of circumstances. are the "great simplifiers" for all decision makers. Business research is continuously looking for new rules that can be put to good use and looking to discredit old ones that are no longer valid. This ongoing process is necessary because business conditions rarely stay the same for very long. Example: Now suppose that the manager uses a computer to graph the average wages paid to men and to women in each of the five years. The result is information because the manager can use it to compare wages paid to men with those paid to women over the five-year period. For a manager, information presented in a practical, useful form, such as a graph, simplifies the decision-making process.

Internal Sources of Data

most of the data gathered for an MIS. Are managers and employees, company records and reports, accounting data, and minutes of meetings.

Accounting

the process of systematically collecting, analyzing, and reporting financial information. accounting information can be used to answer questions about what has happened in the past, it can also be used to help make decisions about the future

verbal data

this processing consists mainly of extracting the pertinent material from storage and combining it into a report. Most business data, however, are in the form of numbers—large groups of numbers, such as daily sales totals or production costs for a specific product.

Data Processing

transformation of data into a form that is useful for a specific purpose.

Expert System

type of computer program that uses artificial intelligence to imitate a human's ability to think. uses a set of rules that analyze information supplied by the user about a particular activity or problem. Based on the information supplied, provides recommendations or suggests specific actions in order to help make decisions. Example: Have been used to schedule manufacturing tasks, diagnose illnesses, determine credit limits for credit card customers, evaluate loan applications, and develop electronic games.

Decision-support system (DSS)

type of software program that provides relevant data and information to help a firm's employees make decisions. It also can be used to determine the effect of changing different variables and answer "what if" type questions. Example: A manager at Michigan-based Pulte Homes may use a DSS to determine prices for new homes built in an upscale, luxury subdivision. By entering the number of homes that will be built along with different costs associated with land, labor, materials, building permits, promotional costs, and all other costs, a DSS can help to determine a base price for each new home. It is also possible to increase or decrease the building costs and determine new home prices for each set of assumptions with a DSS.