Accounting is irrelevant in decision making because the information it provides relates only to the past. ' Discuss. Accounting is relevant to the decision-making process as it helps provide financial information as to the most efficient use of available economic resources.
Although accounting provides financial information based on past financial transactions, it is useful in giving details on how efficiently an organization has been using its available resources in the past.For example, financial statements can provide information to determine what profit the entity has reported historically based on the assets used? A reported profit of $50,000 where an entity has total assets of $200,000 appears more favorable when compared to an entity with the same reported profits, but which has total assets of $1 Accounting information is useful in providing decision makers with information about the outcomes of their past business decisions. Past performance also gives insight to the likely future trends for the entity, which can be very useful in making strategic sections about the future of the entity.Accounting information is also used as part of the budgeting process of a business entity, which provides information on planned activities for the short term.
EXERCISE SOLUTIONS Exercise 1. 2 Information for decisions SHANNON DANIEL - To find accommodation in the city within walking distance of the university or close to public transport. Advertisement reads - Woodpile $350 up 2 brims, unfurl villa, birr, 2 min train, very handy location, pH 8123456 after pm Required: A. Will this information help Shannon make a decision? B.
What additional information would she need before deciding whether or not to rent this villa? A. The information provided partly helps Chanson's decision-making process. It gives financial information as to the cost of the rental per week, location and proximity to the train. Shannon is only able to identify this unit as one of the selections for further investigation based on the suburb identified, at a weekly cost she can afford and for meeting one of her criteria of being close to public transport. She should highlight this advertisement for further investigation. B.
Other information Shannon needs would include: 0 Is there a bond required (does she have sufficient funds)? 0 Where in Woodpile (on a main road/close to shops or transport)? 0 Is the location safe (will she be able to arrive home safely after night lectures)? How far to the train station (2 minutes by car or by foot)? Does the train run past the university? If not, is there a suitable bus service? 0 Personal taste. Does she like the building, the villa, or the neighbors? 0 Will she be able to furnish her own villa or should she be looking for a furnished unit or villa?What alternative options are there available to Shannon (e. G. Stay in a college or live with relatives in Adelaide)? WSDL she be able to share the accommodation with another person? Shannon needs to consider what she is trying to achieve, assess what information she requires, consider what her alternatives are and decide what will be her final choice.
Exercise 1. 10 The small business owner Required: What types of economic decisions would a person wishing to start their own small business be required to make? What types of non financial decisions could they be required to make?How could an accountant assist in making these decisions? The following are examples of the types of economic (financial) and non-financial decisions a small business owner would have to make: 0 A clear definition of the product or service that is to be provided (non-financial), and what the business will charge for these products or services (financial) - this will determine the projected or likely income 0 How the business will be funded - will the owners put all the money in or will there be other owners or lenders (non-financial and financial)?How the business will market its product or service (non-financial), and how much it will cost to do this? (financial) 0 Where the business will be located (non-balancing), and what the rental cost will be (financial) 0 How much staff will be required, what skills do they need to perform their Jobs properly (nonofficial), and how much will they be paid (this will have to be benchmarks against other businesses in the same industry or using staff with similar skills and experience) 0 What equipment or other assets are squired to start the business (non-balancing), and how will these be acquired and at what cost (financial)? Will the business be registered for SST? 0 What accounting and information systems are required for the business (non-financial and financial)? This should be adequate to provide information to the owners, and accurately capture transactions that take place, (including any SST components thereof) The above are Just some examples of decisions that will need to be made by a person wishing to start a business.There are many others, and it should be noted that many sections have both a financial and non-financial component - it is therefore often difficult to make non-financial decisions without considering the financial implications and impacts of those decisions. Accountants can help small business owners with the selection of an appropriate accounting system, with regulatory requirements such as registering for SST, registering a business name, and applying for tax numbers and other tax obligations (such as PAYS) as required - this will depend on the size of the business and what staff will hired.
They can also assist by roving the financial information and assisting in the drafting of a sound business plan that covers all the likely financial impacts of the decisions to be made. They can provide book-keeping and accounting services to maintain accurate financial records for the business and assist in preparing income tax returns, SST returns and other regulatory reporting requirements. Accountants can also help a small business owner prepare a budget for the business, forecast cash flow requirements, and make decisions about which assets to purchase and how best to finance them.
