Basic Accounting
CHAPTER 1 DECISION MAKING AND THE ROLE OF THE ACCOUNTANT
DISCUSSION QUESTIONS SOLUTIONS
1. ‘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 organisation 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 favourable when compared to an entity with the same reported profits, but which has total assets of $1,000,000. 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 decisions 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 – Woodville $350 pw 2 brms, unfurn villa, birs, 2 min train, very handy location, ph 8123456 after 6pm
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 Shannon’s decision-making process. It gives financial information as to the cost of the
DISCUSSION QUESTIONS SOLUTIONS
1. ‘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 organisation 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 favourable when compared to an entity with the same reported profits, but which has total assets of $1,000,000. 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 decisions 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 – Woodville $350 pw 2 brms, unfurn villa, birs, 2 min train, very handy location, ph 8123456 after 6pm
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 Shannon’s decision-making process. It gives financial information as to the cost of the