Adoption Of Accounting Information As The Major Tool For Decision Making

Project and Seminar Material for Accountancy / Accounting

Adoption Of Accounting Information As The Major Tool For Decision Making


Accounting information has contributed to the rapidly growing environment in that the management must update themselves with every current information. That will help in achieving their objectives and help them in decision making.

Accounting information helps the management in planning and evaluation of the information as it is served as data organized for a special purpose of decision making.

Chapter One


1.1 Background Of The Study

Almost all the organization aimed towards the attainment of its desired, planned and overall objectives. In every operation of organization more especially small scale industry aimed towards efficiency and proper effectiveness for this to be achieved to a large extent depends on the quality of available accounting information and how the information will be utilized by the organization. However, information is the life wire of every business, defined by Don T. Coster et al (1978) so for any business to succeed in today’s rapidly changing environment, the management must update itself with every current and relevant information that will be beneficial towards achieving their predetermined objectives because without it there is likely to be stagnation. The manager who is making a decision normally wants to be sure that this knowledge is complete. This is possible only through the effective presentation and its use in appropriate circumstances.

When looking into the importance and usefulness of accounting information to management and especially small scale industry, it will be relevant to state clearly that there are other information that management uses in decision making. Like information by Engineers, Lawyers, Doctors, Architects and other company’s officials, but however, that information by accountant goes a long way to determine the assets base of a company and its liabilities to determine its cost price of production in pricing its products and also in determining when profits or loss is made.

Accounting information measures the progress of a commercial enterprise and is used in decision making for the selection of a single course of action for several dissimilar and unrelated alternatives. It has been observed that decision making is the final process in managerial process, but however, the relevance of an decision by management depends on the accuracy and relevance of accounting information supplied by the accountant.

When the decision involves business and economy questions, accounting information is essential to the decision system because it provides quantitative information for three functions: planning, control and evaluation.

  1. Planning is the process of formulating a course of action, it includes setting a goal, finding alternative ways of accomplishing the goal and dividing which alternative is the best course of action.
  2. Control is the process of seeing that plans are, in fact, carried out. In other words, do actions agree with plans? At this point, the accountant might be expected to give information on actual costs, as compared with cost planned earlier
  3. Evaluation involves the whole decision system as a process of studying the decision system to improve it. It ask the question was the original goal met (Fed back)?if not the reason could have been poor planning or control or wrong goal was chosen.
A Decision System And Accounting Information

The central activity of managers is to make decisions, the quality of these decision determines the success and survival of organization (TURBMAN & LOOMBA 1976)
|Nothing is more important to management for decision making than a timely, objective summarized and directing – attention – to – problem areas of accounting information. Thus
“All decision are based on information in large parts the quality of management decisions will be a reflection of the quality of the accounting and other information which it receives (GARRISON 1982)

Accounting information may include important task, that is, the presentation of weekly, monthly or quarterly accounts. These routine accounts may include a trading and profit and loss accounts showing figures for the period concerned and the year to date and the balance sheet. The routine job is to help management in planning and forecasting future results. The process is known as budgeting and is considered, together with budgetary control.
It is of utmost important to make mention of other users of accounting information or reports apart from management like

  • Shareholder who are interested in their capital investment.
  • Government who really is interested in profit to help them determine task and other policies
  • The creditors, who really as interested in whether the organization as creditor worthy.
  • Employees, a good profit or consistent growth or build up in profit may be a signal to them to demand for more bonus.
  • Finally, the society where the community is located really want to be employed have essential amenities through the influence of the firm.


“Accounting information is therefore, data organized for special purpose of decision making (OSISIOMA, 1996)”
Really the researcher finds to agree on the words of Garrison 1982: thus! The managers interest is in the summarizes that are drawn from the accounting records and it is on these that he or she relies”

1.2 Statement Of Problems

As Garrison has pointed out in 1982, the three uses of accounting information vy management is as follows

  1. To direct the day – to – day operations.
  2. Plan effectively and focus attention on deviations from plans
  3. Arrive at the best solution to the operating problems faced by the organization.

Hypothetically, the problem still remains why is it that management has no been able to accord the desired attention to accounting information

It is quite unfortunate that delay in communication of accounting information by accountants management can spoil the work of a manager, and the confidence entrusted on management by shareholders. The inability of management to recognize accounting information as all important survival remains to be looked into and appreciate attention, given towards re-orienting the management. That accounting information is a single important tool.

The researcher is interested in investigating some findings about how accounting information influences management decision making. The external management rely on it or are all decision based on accounting information? How it is interpreted and presented to the management?

Hypothetically, the researcher also will reveal some decisions taking by some small scale industries and see if accounting information influences their decisions, if yes, to what extent.

1.3 Purpose Of Study

The purpose of study are as follows

  1. The study will require and examine the various decision areas in the organizations which normally accounting information is supplied in small scale industries in Enugu State.
  2. The researcher will determine to what extent management really relies on these accounting information in taking those decision.
  3. Re – orienting management to various types of accounting information available and persuading them to seeing accounting as a single tool to determine profitability, asset base, liability, cost of production and price to fix their products.

1.4 Significance Of Study

The significance of study will go a long way to enlighten all persons in managerial groups on the importance of accounting information, that is, seeing accounting tool as something you cannot be avoided from and a bedrock of management in taking decisions.

It makes some people to work directly in the field of accounting. They need to know how to interpret the information available to them. To create awareness how accounting information works effectively and efficiently. More research are encouraged to be conducted since the information technology as currently taking over things.

1.5 Scope And Limitations.

The researcher now find out that modern accountant, therefore, is concerned not only with record keeping but focuses on the ultimate needs of those who use accounting information, whether these users are inside or outside the business itself. So accounting is not an end in itself. Instead it is an information system that measures, processes and communicates financial information about an identifiable economic entity.

This project intends how accounting information helps management in taking decision as regards the profitability of its products, ho it fixes its products prices, cots of manufacturing its assets and liabilities and then in the opinion of the researcher Enugu state only will be an enough sample space for the researcher to consider.

The researcher will be limited to produce an intensive project and better work by the following:

  1. The limited time available for the academic exercise which poses a serious disturbing thereat though it will be overcome
  2. In most cases, management is not on seats and entails that the researcher will be on the more always in trying to collate the required data from the management involved. Some when they are around may shy away from disclosing their mode of operation.
  3. Finance is in fact on of the limitation but above all, the joy in writing sustain one from the obstacles.

1.6 Statement Of Hypothesis

  1. H0 The use of accounting information has not enhanced pricing strategies in small scale industries
    H1 The use of accounting information has enhanced pricing strategies in small scale industries
  2. H0 Management does not rely on accounting information for its numerous decisions
    H1 Management rely on accounting information for its numerous decisions.

1.7 Definition Of Terms

Accounting is the basis used to provide quantitative information, primarily financial in nature about economic entities that is intended to be useful in making economic decision.

Accounting information as a tool and like most tools, cannot be of much direct help to those who are unable or unwilling to use or misuse it.

Communication network is the channel through which the information system is presented to the management for decision making and other interested publics

Decision – A decision is a choice of alternative and means by which to move towards an objectives

Financial Accounting is a type of information reported to and used those outside the organization.
Management is the group of people in a business with overall responsibility for achieving the company’s goals

Small – scale enterprises according top Okoye in “Pioneer Accounting” first edition, he defines it thus “The small scale enterprise is an economic enterprise with a founder who are the major interest shareholder with the enterprises, share distributed amongst children and relations of the organization”

Price – is money consideration received, given or received to effect a scale of goods and services.

Incentive share is the monetary boosting items and on monetary which management introduces to improve on the working condition of the workers so that he will contribute more in his work place.

Routine is the way by which the accounting information should be used regularly from decision making
Budgetary tool is the total process of developing plans for a company’s anticipated operations and controlling operations to aid in accomplishing those plans.

Adoption Of Accounting Information As The Major Tool For Decision Making

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