Financial Statements Essay

1502 words - 7 pages

Accounting and Financial Statements
Vern Rennier
Upper Iowa University

Accounting and Financial Statements
In this essay I am going to explain and identify external users of accounting information and give detail on the main characteristics and how these characteristics and the conceptual framework develop the benefits of financial statements for external users.
Financial accounting includes information distributed to external users that are not part of the enterprise, e.g. stockholders, creditors, customers and suppliers, although the information is also of interest to the company's officers and managers.
External users have an interest in the businesses final accounts. They ...view middle of the document...

They want to know how quick they are going to be paid. (Elliot, B and Elliot) Trade creditors are interested in data that allows making a decision about whether they should sell to the business and whether the amount owed to them will be paid when it is due. (Weetman P)
Government is interested in the distribution of resources and therefore, in the activities of entities. They require information in order to control this and provide a basis for national income and economic statistics to assess taxation. The Government look at the businesses profit because they are interested in making sure that the businesses accounts are not bias, therefore, ensuring that the correct amount of tax is collected from them. The government tries to make the financial records produced by the use of various accounting systems, so that the ability to compare numbers between companies and industries isn’t lost. (Weetman P)
Customers are interested in the duration of the entity, especially when they have a long term involvement with a business. They want to know how reliable the business is. They need information about the current and future supply of goods and services offered, price and other product details, including the conditions of their products and returns policies. This information can be found from sales staff of the business or from trade. Customers are able to choose from all the businesses in the market and are looking for reasons as to why they should go for a certain business. (Weetman, P)
Lenders are the banks and the other financial institutions who lend money to businesses. Lenders require information that helps them determine whether loans and interests will be paid when on time.
Before a user can be regarded as an external user group, accounting information should satisfy some qualitative characteristics to verify the usefulness of the information. The main four consist of: understandability, relevance, consistency, comparability.
Understandability would be clarifying accounting information in a way that it will be understandable and clear to users who are usually assumed to have some partial knowledge about business and its economic activities.
Relevance is the usefulness of the information to the user. How up to date is the information? This means that for the accounting information to be useful it must help a user to form, confirm an accounting decision. For example, ask them, should I invest? Should I lend money? Should I work for this business?
Reliability means that the accounting information trustworthy, accurate, and reliable to make decisions based on it. It has to be free from bias and has to be audited.
Consistency indicates consistent treatment of similar items and application of accounting policies. The methods used by a company for accounting should stay the same for every accounting period in order for the user of the financial statements to be able to depend on them.
Comparability is to compare...

Other assignments on Financial Statements

Financial Statements Paper

789 words - 4 pages Financial Statements Paper The 4 fundamental monetary reports are the balance sheet, income Statement, retained earnings statement, as well as statement of cash flow (Kimmel, Weygandt, Kieso, 2011). The balance sheet is used to show an idea of what a business has (Kimmel, Weygandt, Kieso, 2011). The balance sheet reports the quantity of assets and claims to assets for a time period (Kimmel, Weygandt, Kieso, 2011). Assets are products the

Accounting Processes' And Financial Statements Essay

1362 words - 6 pages Accounting Processes’ and Financial Statements The purpose of this paper is to provide a foundation of knowledge for accounting and financial bookkeeping. To accomplish this, I will focus on two areas. First, I will provide some general definitions for common accounting processes and ideas; namely, generally accepted accounting principles, double entry accounting, historical cost

Case Study For Dell Inc In Appendix A

266 words - 2 pages Answer the following questions using the annual report of Dell, Inc. in Appendix A. a. Who is responsible for the preparation and integrity of Dell’s financial statements and notes? Management has the primary responsibility for the preparation and integrity of Dell’s financial statements and notes. b. In which note does Dell report its significant accounting policies used to prepare financial statements? Note 1 is where Dell report its

Hello Tomato

1296 words - 6 pages information and results of operations for the past fiscal year. The annual report includes financial statements, notes to financial statements, management's discussion and analysis of financial condition, and the auditor's report. * Financial Statements: Financial statements include four interrelated documents that present financial information about a company. They include the income statement, statement of equity (sole proprietorship &amp

Accounting

384 words - 2 pages Media Summary Paper Irene Chumo ACC/300- Principles of Accounting January 26, 2015 September Foster Media Summary Paper The media that i used was the video on financial statements, “financial statements are records that outline the financial activities of a business, an individual or any other entity. Financial statements are meant to present the financial information of the entity in question as clearly and concisely as possible for

Financial Statement Paper

824 words - 4 pages Financial Statements paper . ACC/290 September 22, 2011 Financial Statements paper Accounting is an action needed by companies in business. Without accounting and the knowledge of the inner workings of financial statements, a business is doomed to failure. In accounting there are four basic financial statements used for an array of reasons. The first financial statement in accounting is the balance sheet. The balance sheet is used to

Homework

280 words - 2 pages to complete the overall job. Primarily the manager is responsible for raising the funds and making the right investment calls, so it’s important the knows everything there is to know about governing a business as far as the risks and the distribution of the funds. Maximizing the shareholders is key as well. Distinguish among the types of financial information contained in the various financial statements. Which statements. Which provide

Accounting Week1

692 words - 3 pages The Importance of Financial Statements Accounting is one key function in organizations today. It is also becoming a top career students are studying. According to Weygand (2008) accounting consists of three key points –it identifies, records, and communicates the economic events of the organization. (p. 4). To grasp the concept of accounting this paper entails the purpose of accounting. The four basic financial statements are identified. The

Apollo Case

526 words - 3 pages This will confirm our understanding of the arrangements for our audit of the financial statements of Apollo Shoes, for the year ending December 31,2011. We will audit the Company's balance sheet as of December 31,2011 and the related statements of income, retained earnings, and especially cash flows for the year then ended, for the purpose of expressing an opinion on them. The financial statements are the responsibility of the Company

Lee College

483 words - 2 pages Lee College Financial Statements ACC 380: Accounting for Not-For-Profit Organizations June 4, 2012 Lee College Financial Statements Why do Not-For-Profit organizations need financial statements? The accounting system for nonprofits is designed to capture the economic activities of the firm and its financial position. The financial statements are constructed based on the “Accounting Equation” in which: Assets = Liabilities + Net Assets

Puppy

353 words - 2 pages STUDY GUIDE EXAM 1: (25 multiple choice questions worth 3 points each and 3 problems worth 45 points) 3 problems may cover following topics: journal entries, adjusting journal entries, closing entries, preparation of financial statements, multiple step income statement. Chapter 1: Purpose (objective) of financial accounting; cash vs accrual accounting (net operating cash flow vs. net income); history of standard setting – SEC, AICPA

Similar Documents

Financial Statements Essay

547 words - 3 pages Done by: Shannan T. Week 1 Assignment: Financial Statements Numbers play a major role in business and to keep track of all of those numbers, financial statements are used. Financial statements are a way of communicating those numbers within the business organization. Financial statements are used as a foundation for decisions that will impact information systems, production, management, and marketing. Any income that a company is

Financial Statements Essay

326 words - 2 pages Katrina Baron Financial Statements The four basic financial statements are the balance sheet, income statement, statement of cash flow, and the statement of retained earnings. The balance sheet depicts the current financial circumstances of the company. This reports the company’s assets, liabilities, and net equity as of a given point in time. The income statement reports the company’s cost and revenues. This reports the company’s income

Financial Statements Essay

1525 words - 7 pages Financial Statements Leslie Johnson January 31, 2010 ACC/280 Principles of Accounting Accounting is a systematic proocess that identifies, records, and communicates the economic events of an organization to interested users (Weygandt, 2008). The financial information gathered is used to determine a company’s financial status and provide reports and insights needed to make sound financial decisions. The purpose of

Financial Statements Essay 1092 Words

1092 words - 5 pages Financial Statements ACC/497 January 30, 2013 Decisions are made daily by company management, lenders, and shareholders. To make informed, intelligent business decisions, there are several strategies that are used by each of the fore mentioned entities. When deciding if investing is the right choice, if a company will be able to repay a loan, or what needs to happen to make a company more efficient, the best way to get an inside look at the