Accounting Information as a Tool for Management Decision Making in Organization

Accounting Information as a Tool for Management Decision Making in Organization

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Introduction on Accounting Information as a Tool for Management Decision Making in Organization

 BACKGROUND OF THE STUDY

Accounting is fundamentally a measurement and communication process used to report on the activity of profit and non-profit seeking organizations. In other words, it is concerned with the discipline of summarizing, recording, analyzing and interpreting economic events and other financial activities. This process is performed by accountants who furnish management with the relevant information needed for effective and efficient decision making as to contribute to the quest for means of surmounting industrial, commercial, governmental and academic problems inherent in a dynamic and volatile socio-economic and political setting. The chambers 20th century dictionary defines information as “intelligence given-knowledge”. This is because reliable information is necessary before a sound decision involving the allocation of scarce resource (land, labour and capital) can be made, that is why accounting profession is dynamic and there is always the need for an accountant to continually update his/her knowledge of accounting portfolio. Accounting information is valuable because it can be used to predict the financial consequences of each alternative course of action. An organization needs quantitative information to function or make decision. Management uses the best available information system to provide management information which is used primarily to accomplish three broad purposes;

(i) To provide financial statement to the interest of external users,

(ii)  To plan the organization activities and operations in both short and long run, and

(iii)  To control the result of its operations.

 The American Accounting Association (1966) also defined accounting as “the process of identifying, measuring, and communicating economic information to permit informed judgements and decisions by users of the information”. Another definition, which is widely accepted, is by the American Institute of Certified Public Accountants (1970) defined accounting as “the art of recording, classifying and summarizing an event which is in part at least of a financial character and interpreting the result thereof”.

The above definition place emphasis on the use of accounting information for evaluating the results of the past and present activities and making decisions concerning future actions. The information is primarily financial and generally stated in monetary terms. It is the process by which the profitability and solvency of an

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