Accounting

The Importance of Accounting in Decision Making ACC 561 Importance of Accounting in Decision Making Accounting is not normally the first direction most managers look when making decisions. However, considering and taking into account such things as budget, ethical practice in bookkeeping, and other accounting practices can be very influential and even pivotal to the decision making process. Guillermo Furniture Store is currently at a pivotal point in the company’s lifespan. The organization is currently faced with an increase in production and labor costs as well as an increase in equal quality competition within the market. Guillermo can use budget, balance, income, and expense reports to help them decide if they should streamline production procedures or merge with a larger competitor. Looking more closely at the accounting procedures at Guillermo can only aid management in strong productive decisions. The Importance of a Budget: The first item that Guillermo Furniture Store must consider before making any decisions about their future is their budget. The budget is the roadmap, or benchmark of how well the business is operating and can help pinpoint problem areas for changes. A budget is extremely necessary in future planning for any organization. It allows management to plan according to numbers and facts rather than speculation, and allows for timeline development. For example, if new machinery is needed to produce a product the funds need to be available for the equipment. A budget would allow management to produce a timeline in payments and availability of funds to obtain the machinery. A budget is also a tool that can be used to set goals in both production and revenue while tracking progress. This tracking can assist in planning for future years and discipline management in money allocation. For example, it forces management to consider; is the money best spent on upgrades or research and development' Finally a budget can aid an organization on setting its standards for expenditures, such as labor costs, which is a concern for Guillermo at the moment. Budgets allow for planning, goal setting, and tracking of progress, which are all needed in making wise, strong decisions, such as the decisions Guillermo must make. Benefits of Using Other Accounting Procedures in Decision Making: Guillermo must also consider other accounting process before making decisions. Areas to consider may be expenditures, income, and balance sheets. These aspects of accounting aid in resource management, finding the wealth of the organization, as well as tracking the money. This financial information will assist in identifying the financial consequences to the decisions, such as the costs of upgrading verses a merger. Considering these other accounting statements can also aid in forecasting, show deviation for budget, and aid in developing long and short term goals, as well as provide the numbers needed to evaluate cost verses benefit of each decision. Importance of Ethics: Another aspect of considering all of the accounting statements, Guillermo must also take into account how ethically sound are the statements. Ethical procedures in accounting are crucial to not only the integrity of the organization, but also to the decision making process. For example, if the books are enhanced in any way the decision maker does not have the correct data in which to make an informed decision. Poor ethics in accounting practices can destroy not only an organization, but also decrease future growth or even survival options. If during a merger the buying organization discovers fraudulent bookkeeping, the merger could be terminated leaving the fraudulent company no other option but to remove itself from the market, which would affect several individuals and their income resources. Performing ethical accounting practices will keep the availability for future options open for the organization. Conclusion: It would benefit Guillermo to strongly consider their accounting statements, such as their budget, balance, income and expenditure statements, before making any directional decisions on the future of the Furniture Store. Informed decisions should be based more from the facts rather than gut feelings or emotions, which the accounting statements can provide if produced through ethical practices. Accounting documents are the tools needed to make wise decisions as well as judge the consequences of those decisions for the future. References: Hayward, R. (June 15,2010). Managing Resources-How can accounting help the decision making of leaders and managers' www.articles.com Kavcak, M. (2010). Why is having a budget important for a business' www.essortment.com Norton, K. (Sept. 28, 2009). Ethics in Accounting. www.articlesbase.com The Guillermo Furniture Store Scenario. University of Phoenix resources.