8 Pages Posted: 20 Nov 2018
Date Written: September 7, 2017
Abstract
Overall economic development of the country, beside it, requires adequate information, reliable and important for economic decisions from investors, managers, administrators of state, etc. Along with other economic development and management, also and development of an accounting system, able to provide the necessary information and reliable in decision-making, is an important factor. Qualitative and reliable financial information is a key element in decision-making process, while the availability of such information has special importance for business management and is public interest with priority in general. The role of this information is important, not only for foreign investors or large businesses, but even for those small and medium because it provides important information about the phases of decision-making, such as planning, control and evaluation. The aim of this study is to provide an overview of developments and knowledge on accounting information and the influence that it has on decision-making, needs that management has for information and how they are realized currently, in order to see accounting information as one of the important directions of increase of efficiency on decisionmaking of direction of economic units (entities) and users of accounting information. Through descriptive statistical analysis the importance of high quality accounting information and its impact on decision-making by its users will be presented. We conclude that the information is an indispensable resource for the development of successful and efficient business. The information communicated by accounting is very important for its users, because it will affect on making an economic decision. This information must meet the qualitative characteristics, so we have to be accurate, valid and useful so that users trust its quality and authenticity. An exact information will reflect in a reliable financial reporting and this will result in strengthening the financial position of the entity, will identify risks and will manage them on time , will enable the attraction of investments, then decisions will be taken on the basis of strong economic information.
Keywords: accounting information, the entity, the economic decision-making, accounting, financial reporting
JEL Classification: M41
Suggested Citation: Suggested Citation
Berisha Vokshi, Nexhmie and Xhelili Krasniqi, Florentina, Role of Accounting Information in Decision-Making Process, the Importance for its Users (September 7, 2017). 2017 ENTRENOVA Conference Proceedings, Available at SSRN: //ssrn.com/abstract=3282577
In today’s sometimes volatile economy, business managers are frequently asked to make process decisions that help the company’s capital work harder or to decrease overhead costs. Good managers have many tools at their disposal to accomplish these goals, provided they have a good understanding of the company’s financial position. Familiarity with the basic types of financial statements and the ability to interpret the numbers behind them are essential to sound business decision-making.
Three Basic Financial Statements
While there are some differences between nonprofit and for-profit entities, all businesses typically prepare these three most common financial statements — the balance sheet, the income statement, and the cash-flow statement. These documents are prepared according to generally accepted accounting principles and presented in a standardized format.
Financial statements are neutral; they present an accurate picture of the activities of the business over a defined period. The business manager then evaluates the data to make operating decisions, such as whether the business is positioned to free up existing cash for operating expenses or needs to obtain additional credit.
The Balance Sheet
The information in the balance sheet drives many business decisions. For example, assume you work for a company with $25 million in annual sales. Examining the balance sheet, you discover that there are six weeks of sales sitting in accounts receivable.
Simply by changing credit policies within the company and focusing on streamlining collections so that most receivables are resolved within 30 days, a million dollars can become available for operating capital without increasing sales or leveraging a line of credit. A good business manager can see possibilities for growth and efficiencies behind the numbers in the balance sheet.
Cash-flow Statement
The cash-flow statement is one of the most important documents for making management decisions. While the company can look profitable based on standard accounting methods, the cash-flow statement tells managers whether the company has the cash to pay its bills over the short term.
Net income and earnings can be manipulated to paint a healthy financial picture, but the cash-flow statement presents the reality of the company’s ability to maintain operations. A drop in the company’s operating cash-flow ratio should trigger a red flag, indicating business managers need to reassess pricing, inventory, overhead, debt, and other short-term decisions to improve the company’s cash position.
The Income Statement
The income statement differs from the cash-flow statement in significant ways: It includes intangibles such as depreciation, but it does not show when revenue is actually received and payables are actually paid. It shows projected profitability over a period. It is also a useful tool for comparing a company’s performance to others of similar size in similar industries. The data in the income statement helps inform decisions that control operating expenses and the cost of goods sold to keep profit margins intact.
Business professionals with the skills to analyze financial statements to inform decisions affecting a company’s operations and profitability are in high demand in today’s job market.
Ohio University’s Online Master of Business Administration can offer significant opportunities to master the financial skills that will give you a competitive edge.