Foundations in Accounting II

This course focuses on the use of accounting information in efficiently operating an organization. The concepts are sufficiently general to be applicable in both profit and not-for-profit organizations, but most of our discussion will deal with profit-oriented firms. Management accounting has two major roles:

  • Decision-Facilitating role: Managers have the responsibility and authority for making decisions with respectto the use of the firm’s resources. To do this effectively they must identify the alternative actions andstrategies available to them, predict the possible consequences of those actions or strategies, and thenchoose the strategy course of action that has the most preferred predicted outcome. Management accounting systems can be effective tools both in providing information that is useful in predicting the possible consequences of alternative actions and to identify where corrective action may be required.
  • Decision-Influencing role: A manager is sometimes the sole owner of a firm, but more generally managers are employees or own the firm jointly with others. The choices made by a manager will depend on the predicted consequences that are of personal concern to her/him and her/his preferences with respect to those consequences. Consequently, the manager may not make the choices most preferred by the owners. To mitigate this problem, the firm’s owners (or higher level managers) frequently establish formal or informal incentive systems that are designed to motivate the manager to choose the actions that they prefer.

An organization's accounting records must provide the information necessary to prepare the financial statements reported to investors, bankers, unions and others who are not part of the firm's management. These statements must be prepared in accordance with generally accepted accounting principles (GAAP), particularly if the statements are audited. However, the information reported to management need not be prepared in accordance with GAAP. Management wants the information that is most useful in operating their organization, and that often differs from the information used to satisfy GAAP.

You should not approach the material in this course as one of memorizing rules or particular solution techniques. We seek to help you develop your analytical skills with respect to the identification and use of decision relevant accounting information. We will provide in-class examples, self-study problems, and assignment problems that are designed to help you understand and apply the key concepts. The examination questions will test your understanding of those concepts, but will often do so by posing problems or conceptual questions that differ from those you have seen before.

Instructor Biography - Bill Dorfmann

Course Outline - Class of 2019 (to be posted)

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