Accounting Information for Decision Making

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Topic 1: Accounting: Information for decision making Economic and business activity Company and types of companies Accounting as Information Systems Users of accounting information Accounting Information Requirements Accounting principles Content Accounting is directly linked to economic activity. Economic activity entails exchanges between the different economic subjects involved in it. Economic subjects can be: o Persons independent of each other, or o Persons related by reason of ownership or control o Economic objects: elements (goods, services, rights and obligations) with which the economic activity is carried out.

Economic activity Economic subjects and objects are grouped into the units where economic activity is framed Private sector companies, with tourism activity, will be our priority object of study. Economic units ECONOMIC UNITS OF PRODUCTION Private companies Productive entities of the social economy Public companies ECONOMIC UNITS OF CONSUMPTION Families Non-profit organisations PRIVATE sector Public administrations PUBLIC sector Business activity consists of production, exchange and consumption of goods, services, rights and obligations. Obtaining profit is the main objective of business activity (business enterprises).

Other objectives: growth, business expansion, revenue maximization, shareholder value creation, etc. Each company decides: what to produce, what to sell and at what price. Business activity It is carried out in an environment of uncertainty (the company ignores the consequences of its decisions). It can be carried out by independent or linked people each other for reasons of ownership or control. Its increasing complexity makes maximum transparency necessary in business actions. More and more sectors are interested in learning about it: the State, owners of capital, administrators, creditors, workers, consumers, etc.

Business activity Classification of companies Commercial Industrial Services Activity Individual Companies: Personalists and Capital Companies Legal form Small Medium Large Size Local National Multinational Ambit Classification according to its legal form Singles Societies Commercial Personalists Collective Simple limited partnership Capital Limited by shares Limited liability Anonymous Other societies (cooperatives, workers,...) For accounting purposes, for the presentation of abbreviated annual accounts(PGC): –SMEs (SMEs can submit abbreviated accounts if they meet two of the following requirements): Total Assets< 2.850.000 € Turnover< 5.700.000 € Number of workers< 50 –Large companies: by exclusion, companies that exceed the above figures.

Classification according to size Their roles, responsibility, and relationships are the same as in any other company. The products it offers are either exclusively services, or have a high component of services. Some carry out activities typical of commercial companies (bars and cafeterias) and others resemble manufacturing companies (restaurants). Companies that carry out economic activities related to Tourism: – Directly and exclusively: holiday hotels, campsites, travel agencies, etc. – Indirectly, the following companies benefit from the tourism phenomenon as a result of the expansion of the market: transport companies, commercial companies, etc.

Tourism companies Accommodation (hotels, tourist apartments, camping, resorts, residences, hostels, spas, etc.). Restoration (restaurants, catering, bars and cafes). Distributors (tour operators and Travel agencies, reservation centers, CRS/GDS, vacation exchange companies). Transport (Land, air and sea). Leisure (Theme parks, casinos, ski resorts, entertainment companies, golf courses,…). Several (travel insurance, specialized publications, tourism professionals, etc.). Also the Public administrations play a role important in tourism.

Types of tourism companies Seasonality Elasticity of demand Strong environmental conditioning Importance of human resources Inability to store unsold production Main characteristics of tourism companies The increasing complexity of business activity makes maximum transparency necessary in business actions. More and more users are interested in their knowledge... for rational decision-making. It is necessary to have relevant information on the economic and financial situation of companies and their possible evolution. The role of accounting in the company (I) It is accounting that is responsible for the preparation and transmission of this information.

Accounting is the most effective and useful information system for preparing and communicating information of an economic- financial nature about the company's economic activity. The role of accounting in the company (II) Evolution of accounting information systems (AIS) (I) There is no single AIS. There has always been a relationship between the economic environment and the AIS. Historically, AIS have evolved: from control to the prediction……… Historical conception(legal): Discipline linked to the establishment of responsibilities for the administration of someone else's assets ("accountability")(Ej.

PGC'90) Current conception: (predictive) Economic discipline whose main objective is to elaborate and communicate useful information for decision- making (e.g. IFRS, PGC'07) Accounting as an Information System (I) Within the scenario described, the primary objective of accounting is: Prepare and communicate appropriate economic and financial information to reduce uncertainty related to the business decision- making process Scientific discipline included within the economic sciences. Related to law, mathematics, statistics, business economics,... Special character by: Theoretical-practical sense and Intervention of regulatory bodies.

Multiple definitions that highlight, depending on the case, patrimonial, legal or economic aspects. Accounting as an information system (II) Process of identifying, measuring and communicating economic information that allows the users to make informed decisions and judgments Definition of accounting of the"American Accounting Association" Composition and evolution of assets. Results of the activity carried out, its nature and composition. Basis for the prediction of future evolution. What is reported?

Stages of the accounting reporting process DATA COLLECTION AND SELECTION MEASUREMENT AND VALUATION REGISTRATION ABSTRACT AND COMMUNICATION - OF THE INFORMATION PROCESSED DECISION- MAKING Where is the information summarized? Financial statements Balance sheet. Profit and Loss (P&G) Statement Statement of changes in equity. Statement of cash flows. Memory.

EXTERNAL USERS CONTRACTUALLY RELATED TO THE COMPANY Investors (shareholders) Lenders Employees Suppliers Clients They have the right to periodic information NOT CONTRACTUALLY RELATED TO THE COMPANY Potential investors Potential creditors Public administration Competing companies Trade unions General public INTERNAL USERS MANAGEMENT MANAGERS Managers Intermediate tables with decision-making capacity They need constant information Users of accounting information Administration Partners Clients Suppliers Creditors Employees Managerial Multiple needs Objective: faithful image.

It takes the form of states formalized financial institutions Financial Accounting Management Accounting Objective: utility It takes the form of multiple non-formalized documents Multiple needs Users and Purposes of Accounting Information Essential requirements Additional requirements Relevance Reliability Integrity Comparability Clarity Opportunity Cost-effectiveness Verifiability Accounting Information Requirements Their purpose is to achieve a true picture of assets, financial situation and results.

They are included in different legal texts (PGC, the accounting of the companies, and in particular the registration and valuation rules, will be developed by applying the following accounting principles). Accounting principles (I) Accounting principles (II) Going concern Accrual Uniformity Prudence No compensation Materiality It is presumed, unless proven otherwise, that the management of the company will continue in the future. The application of accounting principles shall not be aimed at determining the value of the assets for the purposes of sale or liquidation.

Going concern Accrual The effects of transactions or economic events will be recorded when they occur, and the expenses and income that affect it will be charged to the year to which the annual accounts refer, regardless of the date of their payment or collection. Uniformity Once a criterion has been adopted in the application of accounting principles, it must be maintained over time, and applied to all assets that have the same characteristics. Profits: Only those obtained until the closing date. Risks and expenses: As soon as they are known, whether they originate in the year or in a previous one.

All types of depreciation and impairment of assets will be recognized, whether the year is settled with gains or losses. Prudence In no case shall the items of assets and liabilities on the balance sheet be offset. Income and expenses that make up the L&R account will also not be offset. The objective of this principle is not to lose information regarding the composition of assets and the nature of income and expenses. No compensation Materiality The non-strict application of any of the principles may be admitted, as long as it does not significantly alter the annual accounts It is the supreme objective to be achieved by an accounting system and principles are the instrument to achieve it.

Reasonable, impartial and objective image. Accurate when possible; reasonable estimates in other cases. The application of any principle is subject to the achievement of the true picture. In the event of a conflict between the principles, the one that best reflects the true picture will be chosen. What is the true image?

Business Accounting Financial Accounting Cost Accounting Management Accounting Accounting consolidation Accounting Audit Managerial accounting Main Differences Between Financial Accounting and Cost Accounting/Management FINANCIAL ACCOUNTING MANAGEMENT ACCOUNTING USERS External and internal Internal only REQUIREMENTS DOMINANT Relevance and reliability Relevance and opportunity NATURE OF THE INFORMATION Financial and very Added Financial and non-financial, very detailed REGULATION Subject to commercial regulation Unregulated PERIODICITY OF REPORTS Once a year Very common (depending on the needs of the managers).