Accounting is an information management process that systematically accumulates, records and reports information about an organization’s financial performance (i.e. profit or loss), its financial position (i.e. assets, liabilities and shareholder’s equity) and changes in financial position (i.e. cash flows and working capital). Show Every organization, whether business or not-for-profit, aims to create maximum value addition for its owners and other stakeholders. This goal cannot be achieved without a mechanism to monitor the performance of the organization. Performance measurement may be carried out along both financial (i.e. earnings, wealth etc.) and non-financial (e.g. customer satisfaction, market share etc.) dimensions and accounting is concerned with performance measurement in financial terms. Inputs to an accounting system include business transactions which are usually supported by source documents, such as invoices, board resolutions, management memos, etc. but transactions may also take place without formal documentation. Accounting records and processes all quantifiable transactions using well established procedures and techniques. The methods of accounting are affected by whether the reports to be produced will be presented to wider stakeholders rather than just for internal use. This is discussed below. TypesBased on its purpose and potential users, accounting practice and profession is often classified as:
Users of the Financial StatementsThe most basic objective of financial accounting is preparation of general-purpose financial statements, which are financial statements meant for use by stakeholders external to the entity, who do not have any other means of getting such information, i.e. people other than the management. These stakeholders include:
by Obaidullah Jan, ACA, CFA and last modified on Sep 28, 2020 Which users need financial information to enable them to determine whether their loans?(c) Lenders. Lenders are interested in information which enables them to determine whether their loans, and the interest attaching to them, will be paid when due. (d) Suppliers and other trade creditors.
What users need financial information?1. Owners and investors. Stockholders of corporations need financial information to help them make decisions on what to do with their investments (shares of stock), i.e. hold, sell, or buy more. Prospective investors need information to assess the company's potential for success and profitability.
Who are the people who use the financial information of an organization?Investors and Creditors
Because they know that it's impossible to make smart investment and loan decisions without accurate reports on an organization's financial health, they study financial statements to assess a company's performance and to make decisions about continued investment.
What is used to determine the financial position of an entity?The balance sheet is a statement that shows a company's financial position at a specific point in time. It provides a snapshot of its assets, liabilities, and owners' equity.
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