What uses of financial accounting information are made by (a) investors and (b) creditors?
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Users of accounting information are internal and external. Show
External users are creditors, investors, government, trading partners, regulatory agencies, international standardization agencies, journalists and internal users are owners, directors, managers, employees of the company. Let’s look at who are the internal and external users of account information and why they use it. Internal users of Accounting informationInternal users are that individual who runs, manages and operates the daily activities of the inside area of an organization. So who are the internal users of account information;
Managerial accounting identifies, measures, analyzes and communicates the financial information needed by management to plan, control, and evaluates a company’s operations for the internal users. Accounting’s goal is to provide necessary information for the management or also can be defined as Internal users. External users of Accounting informationExternal users are those individuals who take interest in the account information of an organization but they are not part of the organization’s administrative process. External users have a direct or indirect interest in accounting information. Financial accounting is the process for the preparation of financial reports of the enterprise for use by both internal and external parties. These reports are important to the external users of accounting information. Examples of external users of accounting information are;
Creditors and Investors are the most regular example of external users among many other external users. The external users of accounting are; CreditorsCreditors or lenders use the accounting information to find out the ability of the borrower to repay the loan, the number of assets and liabilities of the borrower, evidence of income, economic position, etc. before he or she lend the money to the economic entity. InvestorsInvestors are the capital providers of a business. Before investing, an investor sees the financial report for figuring out the possibilities of the business in the future. Financial information is important for an investor for making sure that the investment is secure. Trading partnersBusiness needs business to do business, it is the truth. Associate trading companies look at the financial information and decide to trade with the particular economic entity. Government Regulatory AgenciesThe financial information is vital for government regulatory agencies as it allows them to monitor the economy and market. Lawmakers and economic plannersIt is important to keep a nation’s economic structure up-to-date with global changes. It is a job for lawmakers and economic planners. The accounting information provides information that is necessary for making changes to the existing laws at the right moment for the economy and society betterment. Other examplesThere are other external users for example; labor unions, customers and consumers, suppliers, SEC, tax authority, chamber of commerce, press, competitors, auditors, etc. Anybody outside of the managing radius of an economic entity is interested in the financial information of it, is defined as an external user. For example to that statement; an MBA student looking for financial information on Google, he/she is the external user of the accounting information of Google. The financial reports or information are the result of the accounting process that transferred to the users in two forms-internal and external. These reports used for effective for operating the business by the internal users, on the other hand, the external users use the information to get a real picture of the financial state of the organization. Recommended textbook solutions
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Financial Accounting4th EditionDon Herrmann, J. David Spiceland, Wayne Thomas 1,097 solutions Accounting: What the Numbers Mean9th EditionDaniel F Viele, David H Marshall, Wayne W McManus 338 solutions What uses of financial accounting information is made by shareholders and creditors?Equity investors use financial information to predict future earnings and cash flows in their efforts to identify securities that will provide high returns. Creditors use financial information to predict whether companies can generate enough cash in the future to cover debt payments.
What uses of financial accounting information is made by investor?1) Investors use financial accounting information to make decisions about whether or not to invest in a company. They are looking at the current and future profitability of the company.
What uses of financial accounting information are made by society?The managers use various information of financial statements for policy formulation, planning, co-ordinating and communication. Proper carrying out of business needs various financial information.
What is the use of financial information to creditor?Details such as income, existing debt obligations, expenses, salaries, profit and cash flow all factor into the overall business financial profile. Creditors use financial statements to determine if the business represents a sound credit risk, as well as its ability to repay debt as agreed.
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