AMERICAN COLLEGE OF TECHNOLOGY

Department of Business Administration Course:

OMBA Quantitative analysis For decision Management
Course Code: OMBA

Individual Assignment

Title: Assignment I

Submitted to: Dr.Lemma

Student Name: BETELHEM WENDWOSEN WELDEAB
Student ID: OMBA-373-21A

August 20,2022
Addis Ababa, Ethiopia

1. What is accounting, why accounting is considered a means to an end?

Accounting is a system of recording and summarizing business and financial transactions and
analyzing, verifying, and reporting the results. Accounting is an information system that
measures, processes, and communicates financial information about an economic entity.
Accounting is a means to an end that accounting is a means rather than an accounting gives
information needed for decision making and that is the end of accounting but is the users who are
going to decide on what, where, and how are they going to use the information giving for.

2. Discuss accounting from the user’s perspective (manager’s viewpoint): - As a manager of

an organization, there is a great responsibility for decision making. a manager can utilize
accounting information to make better decisions. Accounting information can be
analyzed in different ways and be used for different purposes. It’s important to identify
the type of decision that needs to be made to ensure that the correct accounting
information is gathered and analyzed for the best decision making. Decisions need to be
made to help managers optimize business operations. Accounting information is used by
managers to plan, evaluate the company performance, and manage risks. Budgeting is a
great part of an organization and financial reporting can help a manager to set a realistic
budget and identify the need for funding. To measure the company’s performance certain
ratios can be used such as the liquidity ratio which measures the company’s ability to
generate cash to meet the short-term financial commitments, efficiency ratio that mostly
relates to the inventory turnover and the profitability ratio can be used to measure the
return on assets and net profit margins.
For example, an organization that wants to attract investors will depend mostly on cash flow
statements and cash flow forecasts, the income statement, and a balance sheet, whereas an
organization that needs to apply for a loan will rather look into certain ratios such as debt to
equity and debt to service coverage ratios.
3. Identify and discuss the different types of accounting information
There are different types of accounting-
 Managerial Accounting: - preparing financial documents for management and other
higher-level staff. The documents prepared by managerial accountants remain within the
organization only and provide information for planning, evaluating, rewarding
performance. Managers use the financial documents they receive from this department to
help them make the most appropriate business decisions and manage costs. A key
difference with managerial accounting is that those receiving the documents use it for
forecasting purposes rather than as historical evidence of financial progress. Some
specific techniques used by this area of accounting include cost-volume-profit analysis,
risk management, and variance analysis.
 Financial Accounting: - provide information about financial position and performance
of the company. This area of a company focuses on external companies that have
expressed interest in the business. Employees create several financial statements to
provide to investors. The most common ones include the balance sheet, income
statement, and statement of cash flows. These documents help investors understand the
financial strength of the company to decide whether they want to follow through with
making an investment or not.
4. Determine the information needs of users (consider multiple scenarios).
The objectives of accounting information directly correlate to the decision-making
requirements of the users. In fact, the needs of the users usually represent the main
factors taken into consideration when designing an accounting information system. This
is because the users require the accounting information to facilitate their decision-making
processes and in turn, this serves as the platform on which to set the guidelines that
ensure the uniformity, relevance and accuracy of accounting information and procedure
across different organizations.
1. Owners: -These are the investors in the business and are the parties that are the
titleholders to the organization or institution. Accounting information is relevant
to the owners in the sense that it facilitates the determination of whether the
business is maximizing profits and wealth or not.
2. Customers: -They are the purchasers of the organizations’ commodities and
services and are in fact, the economic drivers of the organizations. their main
purpose for accounting information is to evaluate the capability of the firms to
continue supplying customers with their needs in the future.
3. Suppliers: -These are the parties responsible for providing the organizations and
institutions with the products or services necessary for operation and sustenance.
Their need for accounting information comes from the intention to determine
whether the organization can meet its obligations to pay for the supplies it
receives.
4. Managers: -The managers are regarded as the agents of the owners of the
organizations. They essentially run the organizations through a variety of
managerial functions such as planning and strategy formulation, controlling of
activities, organization of the entity and its staff, human resource administration
and directing of the personnel of the organization. the managers and directors
require accounting information to determine whether the organization is working
towards its objectives.
5. Human Resource: -helps the management in planning and executing personnel
policies and plans pertaining to the recruitment, transfer, promotion and
retrenchment of human resources.
6. Marketing: - By compiling financial statements, the accounting department assists
management in determining the business's profitability. Marketing departments
create sales strategies and programs aimed at increasing sales through promotions
and advertising.
5. Discuss the basic functions of accounting information in decision making (consider
multiple scenarios): - Accounting information gives a hard figures and data that Decision
 makers can use to make well-informed decisions. When decision makers sit down to
write their budget, the financial information for decision making needs to be up-to-date
and complete. Did you see a profit or a loss last year? Did the costs of goods increase or
decrease? Is there a budget line item that can be removed or replaced with another line
item that may be more profitable? accounting information can answer these questions. If
the budget is healthy, they may decide that they can hire another employee or purchase
more equipment.
For example, owners, managers, and investors need to evaluate a company's financial
performance. ... In fact, the purpose of accounting is to help stakeholders make better
business decisions by providing them with financial information. investors and
stakeholders may ask to see company’s income statement. The line items detail any one-
time and recurring income transactions to show if the company income is consistent or
not. An investor may decide to move forward with investing in your business if your
accounting information shows the company have steady income. 
6. What are the internal and external users of accounting information?
External users are those entities interested in the financial results of a business, but who
take no part in operating the entity. Accounting standards are intended for this audience,
so that organizations release financial statements that are consistently formulated across
entire industries, making it easier for external users to rely upon the presented
information. Examples of external users
 Creditors: -Creditors want to know if a company can pay its bills in a
timely manner.
 Customers: -Customers are more likely to have an interest in a company's
financial statements when they rely upon the goods and services provided
by the firm.
 Investors: - Investors want to examine the historical financial results of a
business, while also delving into management's best estimates for the
prospects of the organization.
 Labor union negotiators want to see a firm's financial statements to arrive
at negotiating positions regarding the compensation and benefits of the
employees that they represent.
 Suppliers who are being asked by the firm to supply credit will likely
want to search the company’s financial statements and historical payment
patterns to arrive at a maximum amount of allowable credit.
7. Differentiate financial and management accounting information.
Most accounting tasks can be divided into financial accounting and managerial
accounting
 Managerial accounting information is financial information to managers for the pursuit of
an organization's goals. It varies from financial accounting information because the
intended purpose of managerial accounting information is to assist users internal to the
company in making well-informed business decisions. Managerial accounting
information encompasses many facts of accounting aimed at improving the quality of
information delivered to management about business operation and it is not for external
users also it can be modified to meet the needs of its intended users.
  Financial accounting information is information about financial reports to provide
information about a firm's performance to external parties such as investors, creditors,
and tax authorities.
In short Managerial accounting information is aimed at helping managers within the
organization make well-informed business decisions, while financial accounting is
aimed at providing financial information to parties outside the organization.
8. Outline the objectives of financial accounting and characteristics of management
accounting information.
Objectives of financial accounting
–Profit/loss measurement by summarized in the profit and loss statement to assess if the business
has generated profit or incurred loss.
– Compliance with Statutory Requirements One of the objectives is to ensure compliance with
local laws related to taxation, companies Act and other statutory requirements relevant to the
country where the business undertakes. It ensures that the business affairs adhere to such laws
and relevant provisions comply while business is conducted.
– Safeguarding of Interest of Various Stakeholders, it provides suitable and relevant information
related to business operations to various stakeholders such as Shareholders, Prospective
Investors, Financers, customers, creditors.
– Helps in the Measurement of Profit and Loss of Business it measures the profitability of the
business for a particular period
– Preparation of financial statement and Present Historical Records
Characteristics of management accounting information are: - Prepared objectively, Consistency
of recordation and presentation, in support of decisions, Matches reader knowledge, Reliability
and completeness of information

9. Substantiate the need for accounting for business administrators and managers.
Accounting activities help administrators and managers to make important decisions
regarding the operation of the business. Areas of accounting such as financial reporting,
budgeting and cost information help managers make planning and controlling decisions.
Also, Executive managers use the information presented by accountants to determine the
company's financial health and the organizational resources needed to operate.
Accounting activities help administrators in different aspects like Financial Reporting,
Planning and Controlling, Costing, Budgeting and Supplies and Equipment. Accounting
helps managers make operational decisions–intended to help increase the company's
operational efficiency–which also helps in making long-term investment decisions.
10. Discuss financial statements, their purposes, and their types.
Financial statements are written records that convey the business activities and the
financial performance of a company. Financial statements are often audited by

government agencies, accountants, firms, etc. a financial statement is simply a

declaration of what is believed to be true about an entity, communicated in terms of a
monetary unit, such as the Birr.
There are four main financial statements. They are:
(1) balance sheets; balance sheet lists all resources, obligations /claims/ and net worth of an
economic entity on a specific date, usually at the last date of the fiscal period.
(2) income statements; shows a company’s profit or loss over a given period.
(3) cash flow statements; reports cash inflows and outflows.
(4) statements of shareholders' equity are a reconciliation of the beginning and ending balances
of stockholders’ equity accounts.
11. Discuss the statement of financial position; identify its major parts and elements.
Statement of financial position or balance sheet lists all resources, obligations /claims/
and net worth of an economic entity on a specific date, usually at the last date of the
fiscal period. A balance sheet is a financial statement that contains details of a company's
assets or liabilities at a specific point in time.
The main elements of financial statements are as follows:
 Assets. ...
 Liabilities. ...
 Equity. ...
 Revenue. ...
 Expenses.
12. What are assets, liabilities, and shareholders’ equity/capital, owners’ equity, dividends,
drawing?
Assets: - is a resource with economic value that an individual, corporation, or country owns or
controls with the expectation that it will provide a future benefit. a resource controlled by the
entity because of past events and from which future economic benefits are expected to flow to
the entity.
Liabilities: - is a debt owed from one company to a person or company that is not an owner of
business. Liabilities settled over time through the transfer of economic benefits including money,
goods, or services.
shareholders’ equity/capital: -is the difference between the total assets and the total liabilities.
Dividends: -are a portion of a company's earnings which it returns to investors, usually as a cash
payment.
13. Discuss the income statement; identify its purpose, types, major parts, and elements.
Income statement reports on an entity’s revenues, expenses, and the net change in revenue over a
given period. The purpose of an income statement is to show a company's financial performance
over a period. It tells the financial story of a business's activities. Within an income statement,
you'll find all revenue and expense accounts for a set period. The main elements of income
statement include revenues, expenses, and net income.
14. What is revenue, costs, expenditure, expenses, profit, loss, and income?
Revenue is the total amount of income generated by the sale of goods and services related to the
primary operations of the business.
Costs the monetary value of expenditures for raw materials, equipment, supplies, services, labor,
products, etc. It is an amount that is recorded as an expense in bookkeeping records.
Expenditure is a payment or the incurrence of a liability in exchange for goods or services.
Profits the financial benefit realized when revenue generated from a business activity exceeds
the expenses, costs, and taxes involved in ...
Loss is a decrease in net income that is outside the normal operations of the business.
Income the amount of money received by a person, group, or company during a certain period.
15. Discuss the different types of costs and give examples of each. Types of costs are
Direct Costs: - are related to producing a good or service. Direct Costs: Refer those costs which
are easily traceable to a particular cost object.
Example: - Direct Material and Direct labor costs (in a manufacturing enterprise) A direct
cost includes raw materials, labor, and expense or distribution costs associated with producing a
product. In car manufacturer the direct costs associated with the car are the wages paid to the
worker.

Indirect costs: - are expenses unrelated to producing a good or service or those costs which are
assigned to a particular cost object.
Example Indirect Material, Indirect labor, and other factory costs (manufacturing
overhead or factory overhead costs) and in car manufacturer the electricity used to power is
indirect cost.
16. Differentiate product costs and period costs.
Product cost refers to the costs incurred to create a product. These costs include direct labor,
direct materials, consumable production supplies, and factory overhead. Product cost can also
be considered the cost of the labor required to deliver a service to a customer. Examples of
product costs are direct materials, direct labor, and allocated factory overhead.
Period costs are any costs a company incurs that are not directly related to the production
process. This means they are not related to the cost of one product or inventory costs for a
business; therefore, period costs are included in a company's financial statement during their
assigned accounting period. Examples of period costs are general and administrative
expenses, such as rent, office depreciation, office supplies, and utilities.
In other word Product Cost is the cost which can be directly assigned to the product. Period
Cost is the cost which relates to a particular accounting period.
17. Differentiate variable, fixed, and mixed costs.
A variable cost is a corporate expense that changes in proportion to how much a company
produces or sells. Variable costs increase or decrease depending on a company's production
or sales volume—they rise as production increases and fall as production decreases.
A Fixed cost is a cost that does not change with an increase or decrease in the number of
goods or services produced or sold.
A mixed cost is a cost that changes with the volume of production like a variable cost and
can't be eliminated like a fixed cost. A mixed cost is an expense that has attributes of both fixed
and variable costs. In other words
Fixed costs are constant regardless of activity level, variable costs change proportionately
with output and mixed costs are a combination of both
18. Discuss the statement of cash flow; identify its purpose, major parts, and sections.
Statement of cash flows (SCF) reports cash inflows and outflows. The statement of cash
flows, or the cash flow statement (CFS), And it is a financial statement that summarizes
the amount of cash and cash equivalents entering and leaving a company. statement of
cash flows provides information about cash receipts, cash payments, and the net change
in cash resulting from the operating, investing, and financing activities of a company
during the period.
Major parts statement of cash flow
Cash flows from operating activities - Cash flows from the company’s transactions and events
that relate to its operations.
–Cash flows from investing activities - Cash flows from acquisitions and divestitures of
investments and long-term assets.
–Cash flows from financing activities- Cash flows from issuances of and payments toward
borrowings and equity.
19. What is the relationship among financial statements (clearly indicate which financial
statement should be prepared first and why)?
The financial statements balance sheet, income statements, cash flow statements and

statements of shareholders' equity all linked and dependent on each other. if we take one
example Net earning what we get in Income statement we will get on balance sheet at
Retained earnings. Depreciation and other capitalized expenses on the income statement
need to be added back to net income to calculate the cash flow from operations.
Depreciation flows out of the balance sheet from Property and Equipment onto the
income statement as an expense, and then gets added back in the cash flow statement.
The financial statement prepared first income statement. The income statement breaks
down all company's revenues and expenses. You need your income statement first
because it gives you the necessary information to generate other financial statements or
because its result, Net Income, is needed as part of the other financial statements.
20. Identify and discuss the different forms of business organizations and indicate what types
of financial statements they are expected to prepare (use types of activities and form of
ownership as a basis of classification)
A sole proprietorship: - is a type of business with only one owner. The owner has
complete authority over every aspect of the business. The primary financial statements
prepared for a sole proprietorship are the income statement and the balance sheet. Two
other statements, the statement of changes in owner's equity and the statement of cash
flows, are also often prepared.
A partnership business: - consists of two or more people who combine their resources
to form a business and agree to share risks, profits, and losses. In partnership business
balance sheets are usually prepared with the cash and equivalents at the beginning,
followed by the current and fixed assets and then liabilities.
A corporation: - is a business entity that is owned by its shareholder who elect a board
of directors to oversee the organization's activities. In corporation balance sheet, income
statement, and cash flow statement each offer unique details with information that is all
interconnected. Together the three statements give company's operating activities.
Limited liability company: - is a form of legal protection for shareholders and owners
that prevents individuals from being held personally responsible for their company's
debts or financial losses. a statement of financial position (balance sheet), statement of
profit or loss and other comprehensive income, statement of changes in equity and
statement of cash flows.