Question

WRITE A RESPONSE TO THE FOLLOWING !

The primary objective of financial accounting is to provide accurate financial information. Accounting supplies managers and owners with significant financial data that is useful for decision making. The accounting professional must take the time to carefully access and balance the company or enterprise financial aspects. They must be willing to learn about the resources available while understanding ways to grow based off of past company performance. Internal users: are individuals who use accounting information from within an Organization. An example of an internal user is a store manager. Some of the ways internal users employ accounting information include: Assessing how management has discharged its responsibility for protecting and managing the company’s resources · Shaping decisions about when to borrow or invest company resources · Shaping decisions about expansion or downsizing External users: are individuals that have a financial interest in the reporting aspect of the business. However, they are not involved in the day to day operations. An example of an external user is a supplier or a customer. The external users of accounting information fall into six groups: Owners and prospective owners Creditors and lenders : banks and lending institutions Employees and their unions. Governmental units: tax returns, and other documents General public The integrity of financial reporting is the most important trait to have as a professional in any field. There is heavy reliance on integrity by the people who want to be sure that their information and finances will be handled with confidentially. There are a few Christian valuesthat promote integrity in internal financial reporting: Proverbs 16:8 “Better is a little with righteous than great revenues with injustice." Exodus 20:15 You shall not steal."

Answer 1

Accounting / Financial Accounting:

Accounting is used by business entities for keeping records of their monetary or financial transactions. A businessman who has invested money in his business would like to know whether his business is making a profit or incurring a loss, the position of his assets and liabilities and whether his capital in the business has increased or decreased during a particular period.

Functions of Accounting include:

1. Keeping Systematic Records: Accounting is done to keep a systematic record of financial transactions.
2. Protecting and Controlling Business Properties: Accounting helps to see that there is no unauthorised use or disposal of any assets or property belonging to the firm, because proper records are maintained. Accounting will furnish information about money due from various persons and money due to various parties.
3. Ascertaining the Operational Profit/Loss: Accounting helps to determine the results of the activities in a given period, usually a year, i.e. to show how much profit has been earned or how much loss has been incurred. This is done by keeping a proper record of revenues and expenses of a particular period and then matching the revenues with the corresponding costs.
4. Ascertaining the Financial Position of the Business: Balance sheet is prepared to ascertain the financial position of the firm at the end of a particular period.
5. Facilitating Rational Decision Making: Accounting facilitates collection, analysis and reporting of information at the required point of time.

Users of Accounting information:

1. Owners/Shareholders: The primary aim of accounting is to provide necessary information to the owners related to their business.
2. Managers: In large business organisations and in corporations, there is a separation of ownership and management functions. The managers of such business houses are more concerned with the accounting information because they are answerable to the owners.
3. Prospective Investors: The persons who are contemplating an investment in a business will like to know about its profitability and financial position. They derive this information from the accounting reports of the concern.
4. Creditors, Bankers and other Lending Institutions: Trade creditors, bankers and other lending institutions would like to be satisfied that they will be paid on time. The financial statements help them in judging such position. Banks and other lending agencies rely heavily upon accounting statements for determining the acceptability of a loan application.
5. Government: The Government is interested in the financial statements of business enterprise on account of taxation, labour and corporate laws.
6. Employees: Employees are interested in financial statements because increase in their salaries and wages and payment of bonus depends on the size of the profit earned.
7. Regulatory Agencies: Various Government departments and agencies such as Company Law Board, Registrar of Companies, Tax Authorities etc. use accounting reports not only as a basis for tax assessment but also in evaluating how well various businesses are operating under regulatory legislation.
8. Researchers: Accounting data are also used by the research scholars in their research in accounting theory as well as business affairs and practices.
9. Customers: Customers may also have either short-term or long-term interest in the business entity to know the profitability, liquidity and solvency position of the company.

Internal users – Managers, Employees

External users – Shareholders, Prospective Investors, Creditors, Government and Regulatory agencies, Researchers, Customers

The financial information is used by a variety of users for making economic decisions. Financial reporting is the exercise of the company to report the details of every transaction to the users of financial statements.

The preparation of financial statements assumes that the users have basic knowledge and interest to understand the financial statements. All the material transactions are reported as a part of financial statements and notes to Accounts.

Because the users make economic decisions based on financial reports, heavy reliance is placed on the information presented by the company.

Hence, the integrity of financial reporting is integral.