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Algorithmic Assessment

Accounting for Decision Making

Accounting for Decision Making E-Workbook

Introduces the contents of financial statements and their interpretation and analysis. Introductory management accounting topics are also included. Emphasis is placed on covering the decision making tools from a user's perspective, without the need to refer to debits and credits.

Part 1: Financial accounting

Introduction to accounting

  • The role of accounting
  • Users of accounting information
  • Regulatory environment

Business Structures

  • Sole traders
  • Partnerships
  • Companies
  • Advantages and disadvantages of each business structure
  • Financial statements of each business structure

Introduction to financial statements

  • Defining assets, liabilities, equity, income, expenses and profit
  • Classifying accounts as assets, liabilities, equity, income or expenses
  • Assets = Liabilities + Equity
  • Characteristics of financial statements
  • Introduction to the balance sheet
  • Introduction to the income statement

Transaction analysis

  • The principle of duality
  • Recording transactions to start up a business
  • Recording income and expense transactions
  • Recording transactions that affect inventory
  • Multiple transaction analysis

Balance sheet

  • The definition and recognition criteria of assets, liabilities and equity
  • Applying the definition and recognition criteria
  • Current and non-current classifications
  • Transactions affecting the balance sheet
  • Format, presentation and limitations of the balance sheet

Income statement

  • The definition and recognition criteria of income and expenses
  • Applying the definition and recognition criteria
  • Cash vs accrual accounting
  • Transactions affecting the income statement
  • Determining gross and net profit
  • Format and presentation of the income statement

Cash flow statement

  • Purpose and format of the cash flow statement
  • Operating, investing and financing cash flows
  • Direct method of preparing the cash flow statement
  • Indirect method of preparing the cash flow statement
  • Interpretation and analysis of cash flows

Financial statement analysis

  • Horizontal and vertical analysis
  • Calculating ratios
  • Interpreting ratios
  • Using financial statement analysis in decision making

Ratios covered include:

  • Current ratio
  • Quick ratio
  • Cash flow from operations ratio
  • Return on equity
  • Return on assets
  • Net profit margin
  • Gross profit margin
  • Interest cover / times interest earned
  • Debt to equity ratio
  • Debt ratio
  • EPS
  • P/E
  • Asset turnover
  • Average inventory turnover period/Inventory turnover (days)
  • Average debtors settlement (debtors turnover (days))

Part 2: Management accounting


  • Direct and indirect costs
  • Product and period costs
  • Job costing and process costing
  • Allocating overhead to a single product or service
  • Determining costs in multi-product (multi-service) firms
  • Using cost information to determine selling price and profit
  • Using cost information to determine the value of inventory

CVP analysis

  • Cost behaviour: variable, fixed and mixed
  • CVP graph
  • Break-even analysis
  • Target profit and CVP analysis
  • Using CVP analysis in decision making


  • The budgeting process and the master budget
  • Preparation of the sales, production and purchases budgets
  • Preparation of the cash budget
  • Preparation of the budgeted financial statements
  • Flexible budgets
  • Budget variance analysis

Capital investment decisions

  • The nature of capital investment decisions
  • Time value of money
  • Accounting rate of return/Return on average investment
  • Payback period
  • Net present value
  • Internal rate of return
  • Using capital investment techniques in decision making, including multiple and mutually exclusive projects

Relevant costs and decision making

  • Relevant costs and opportunity costs
  • Incremental/differential analysis
  • Special pricing/special order decisions
  • Make or buy decisions
  • Product mix decisions with resource constraints
  • Add, retain or eliminate business segments or products
  • Qualitative factors to consider in decision making