THE USE OF FINANCIAL ACCOUNTING AS A TOOL FOR MANAGERIAL DECISION MAKING

THE USE OF FINANCIAL ACCOUNTING AS A TOOL FOR MANAGERIAL DECISION MAKING, A RESEARCH PROJECT TOPIC ON ACCOUNTING

CHAPTER ONE

INTRODUCTION

1.1.       BACKGROUND TO THE STUDY

In recent years the advancement in accounting transaction system modules all over the world has made business organisations to exert resources in this area if they are to compete favourably among their local and foreign counterparts. Gone were the days when business organisations were simply required to make profit, survive and provide a fair return to investors’ on their interest. The modern business organisations find itself in the atmosphere of global uncertainties, cut throat competition locally and internationally and unprecedented change in the economy. Hence, a great demand is often placed on the managers of these organisations to make pragmatic and informed decisions if the organisation is to move forward as the success or otherwise of any organisation is often a function of the sum of the decisions taken in the past. However, the quality of decisions taken by managers rests upon the substance and accuracy of financial accounting information’s provided by information systems available to them.

In today’s world,Financial accounting provides the rules and structure for the conveyance of financial information about businesses (and other organizations). At any point in time, some businesses are poised to prosper while others teeter on the verge of failure. Many people are seriously interested in evaluating the degree of success achieved by a particular organization as well as its prospects for the future. While a few basic procedures or methods have changed, the purpose of financial accounting remains the same. Business owners often use accounting to measure the financial performance of their companies and make business decisions.

The American Institute of Certified Public Accountants  has defined the Financial Accounting as “the art of recording, classifying and summarising in as significant manner and in terms of money transactions and events which in part, at least of a financial character, and interpreting the results thereof”. American Accounting Association defines accounting as “the process of identifying, measuring, and communicating economic information to permit informed judgements and decisions by users of the information.

It is noteworthy to say here that financial Accounting derives its source from accounting transaction data and information. Financial Accounting produces results which enhances decision making in the organisation. Hence, it can safely be concluded that Financial Accounting is not an end in itself but a means to an end .i.e. decision making to improve corporate performance, and also produces detailed and comprehensible accounting information which are invaluable basis for decision making.

THE USE OF FINANCIAL ACCOUNTING AS A TOOL FOR MANAGERIAL DECISION MAKING, A RESEARCH PROJECT TOPIC ON ACCOUNTING