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What do each of the four financial statements tell you about a company? How do companies use financial statements? Which financial statement do you think is the most useful and why?
The four statements in the U.S. are the Balance Sheet, Income Statement, Changes in Financial Position and Statement of Retained Earnings. The B/S tells you the cost of the company's assets and the amount of money the company owes. [ The difference is the retained earnings left in the company by its owners. The B/S is very important to the banks and creditors because it gives them an
understanding of what a company owes and coverage of the assets in case things go bad for the company. The I/S is most useful to the managers and investors and somewhat to the creditors and employees. With the I/S, managers can gauge how well they are doing against prior periods and years. It shows how much they are spending and for what. The investors look at the I/S to see if the is growing, which is something they are looking for. The Cash Flow Statement is one of the statements that links the I/S and B/S. It shows what the sources and uses of funds have been for the company. In the real world it is not frequently referred to unless you have specific questions like how much new equipment the business purchased or where the business is getting its money or repaying its money. The Statement of Retained Earnings (where required like the SEC) tells you how the Stock Ownership (assuming its a corporation) is coming from. This makes the statement useful to owners, investors and employees with stock options in the business. All statements are used by all four classes of interested parties, as are the footnotes to the financial statements. The notes, as they are called, really tell you a lot about a business. For example, its debt, who does it owe it to, at what rate of interest, when does it have to be paid back. Debt footnotes are extremely useful to banks thinking about lending money to the business. The Stock Options footnote is very useful to investors and employees because it tells how much future stock the company has promised to others and what is the conversion price. The Employee Stock Option footnote is useful to all four classes. It tells how much the company owes to its employees in the future and whether those obligations have been fully paid. ]
Expert answered|jher000|Points 7423|
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Asked 6/22/2012 12:05:26 PM
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In your own words, how would you describe financial accounting? Select two users, one internal and one external, who you think benefit the most from accounting. Explain why and how you think they benefit.
Weegy: I would describe financial accounting as the process of collecting, recording, summarizing, and presenting an entity’s financial transactions and other pertinent financial information to internal and external users of that information, [ usually in accordance with generally accepted accounting principles. Two users, one internal and one external, who I think benefit most from accounting are managers and investors, respectively. Among internal users, managers benefit most from accounting in many ways. First, it provides them with the basis to make informed business decisions. Managers are better equipped to direct the various aspects of the firm for which they are responsible when they have access to relevant, timely accounting information. Business decisions include, but are not limited to, purchasing new equipment or facilities, expanding existing operations, and utilizing different economic resources. Similarly, accounting can help managers make investment decisions. Second, managers often use accounting information to create budgets. Historical financial information is a great source of information when companies are developing their financial road map for the future. Third, accounting can help managers measure the performance of a firm’s operations. A detailed analysis allows management to compare current performance indicators against those of previous accounting periods, and against those of its industry and its competitors. Investors benefit most from accounting in much the same way that managers do. By and large, it provides them with the basis to make informed investment decisions. First, investors use accounting information to ascertain a firm’s financial health and operational profitability, and, ultimately, to determine its value. Investors tend to shy away from investment options that are grossly overpriced. Second, investors can utilize financial information to compare an entity’s current performance against its past performance, and against ... (More)
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Asked 6/22/2012 11:17:04 AM
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In your own words, how would you describe financial accounting? Select two users, one internal and one external, who you think benefit the most from accounting. Explain why and how you think they benefit.
Weegy: Financial accounting is focused on providing accounting reports and analysis to other areas of the business. [ Financial accountants are responsible for the creation and issuing of the company's financial statements, providing accurate and timely information to management and ensuring that all regulatory reporting requirements are met. In financial accounting, the goal is to consistently provide the valuable, accurate and reliable information. The issuing of the financial statements is the responsibility of the financial accounting department. These statements summarize the business's activities for the year and are used by shareholders, banks, employee bargaining units, and the general public to evaluate the financial worth of the company. The statements are audited by independent accountants to validate the information and provide assurance to readers. The financial statements are comprised of five documents; balance sheet, income statement; cash flow and owners or shareholders equity and notes. Notes to the financial statement are written explanations of items in the financial statements. Any unusual items or change in procedure that has impact on the financial statements are detailed here. The balance sheet is a summary of all the assets and liabilities at year's end. The accounts reflect the total amount of cash and liquid assets on hand, the amount of debt the company is carrying, and how much money was spend in various categories. Financial accounting firms perform analysis of these values using ratios and other calculations to determine the financial health of the company. ] (More)
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Asked 6/22/2012 11:36:33 AM
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