Question

Give your opinion on how accounting information is utilized in collaboration to manage finances better and design strategies/internal policies. Furnish examples. [Hint: How retained earnings may be utilized to replace an asset in urgency. Examples including financial statement analysis are most welcome.

Answer 1

Accounting deals with the rules and regulations that the company should follow in order to ensure that the money received by the company is treated properly in the books of accounts. This is the basis of making the business decisions especially the decisions of finance. While accounting information is prepared by the accountants, the managers of the company use this information as the basis for taking magerial decisions. Some of the major types of decisions based on accounting information are:

1) The decision to take up a new project and invest money in a project is based on the cash flows and the income that will be generated from the project. The finance department will take the capital budgeting decisions based on the cash flows of the project.

2) The finance department's decisions like giving dividends etc are also based on the accounting information that is obtained fron profit and loss statement and Balance sheet.

3) The decision to acquire a business or to merge or takeover is also based on basic ratio analysis on the accounting information of the company.

4) Corporate governance decisions are also based on the accounting information that includes information about what happened in the company in the past. It helps to design policies for the future.