Accounting for Managers: Interpreting Accounting Information for Decision Making, 4th Edition

Part II

The Use of Financial Statements for Decision Making

The major concern of this book is with accounting information for decision making, so financial statements provide a crucial ingredient to decision making due to the importance of shareholder value (as we saw in Chapter 2). Therefore, the concept of ‘decision usefulness’, i.e. the value of information for making decisions, while largely based on notions of cost (the recurrent theme in Part III), is also intertwined with the value of the business as perceived by shareholders and capital markets. Thus the focus of Part II is on understanding and interpreting financial statements. Our focus here is not so much on how investors use financial information to make investment decisions, but on how managers can interpret and use the expectations of shareholders and the financial information they have at hand to make decisions that contribute to improving shareholder value.

Chapter 6 describes the main financial statements and the accruals basis and accounting standards that underpin them. Chapter 7 helps the reader to interpret the main financial statements using the tool of ratio analysis. Chapter 8 is concerned with accounting for inventory, which is a crucial link between financial accounting and management accounting. The introduction to financial accounting in these chapters is an important building block for an understanding of management accounting in Part III.