Introduction to Financial Accounting Flashcards
Why are financial statements used?
To provide info about the entity that is useful to users in making economic decisions
Who uses financial statements?
- Shareholders/ investors
- Competitors
- Government
- Banks
- Employees
- Management
- Suppliers
- Customers
AND LOTS MORE
Why do shareholders/ investors use financial statements?
To make decisions about buying, selling or holding shares in a particular company or keep the ones that they own.
Why do banks use financial statements?
To make decisions on lending money to a business, what interest rate to charge and what security they might need.
Why do employees use financial statements?
To see how well the business is doing. Good financial performance = bonuses. Bad financial performance = look for another job.
Why do managers and directors use financial statements?
To see if they need to pay a dividend to a shareholder or to see budgets for the next year. However, they don’t heavily rely on financial statements because they have access to management accounts within the company
Why do suppliers use financial statements?
To judge how likely it is that they’ll get paid and if to provide their good or services on credit with certain terms
Why do customers use financial statements?
To see a business’s financial stability. To see if they can rely on their suppliers for certain services or goods.
Why do HMRC use financial statements?
To check the accuracy of the corporation tax calculation
Why do Credit Rating Agencies use financial statements?
To provide the business with numbers for their calculation of a company’s credit rating
Why do competitors use financial statements?
To compare with their peers and to see their cash-flow and strategy.
What is the Conceptual Framework?
A set of general principles and guidelines that form the foundation for developing accounting standards.
What type of businesses use financial statements?
Sole traders, PLC, LTD, charities, partnerships etc.
