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Q: Discuss how the financial statements would be useful to external users such as investors and creditors
A: External users such as investors and creditors uses financial statements. The information obtained from the financial statements are used to make decisions to buy, hold, sell, or lend. [ Investors use the income statements to review a company's income to predict future income. Investors use the information on potential income so that they know when to buy and sell stock from the company. The
creditors use the income statements to analyze the future of the company. The creditors need to make sure a company will be able to back money borrowed. The retained earnings statement is useful to investors and creditors as well. By the investors monitoring retained earnings statements the investor will be aware what is the business dividend practices. The monitoring allows investors to make a decision whether or not to invest. The creditor however monitors for a different reason. The creditor has to monitor to assure that company does not pay out to much dividends to investors, in which could have the company inability to pay back debt to creditor. Creditor also find the balance sheet useful as well. The balance sheet shows creditors the ability of the company can repay a debt. These assets and other liabilities is the focus on the balance sheet to creditors. The external users of financial statements finds information obtained useful to make decisions regarding interest in working with business. In brief, the four basic financial statements were defined. The four basic financial statements are the balance sheet, income statements, retained earnings statements, and statement of cash flows. The purpose of each of the four basic financial statements was given. The purpose of the statements is to ensure all parties involved internally and externally are informed regarding the company's financial position. The statement is used by external and internal users to make present and future decisions. Each financial statement plays a useful role to external and internal users, to a point in which decisions are made. The business financial are a source of information that is used in various ways. ]
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Asked 10/14/2012 12:01:46 PM
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