Question

Answer the following questions:

Briefly state what makes Accounting information useful to its users.

List at least five types of users of financial statements and briefly explain each user’s information expectation from the financial statements.         

Answer 1

LIST OF USERS OF FINANCIAL STATEMENTS

The users of financial statements are Bradley classified into two .internal users

. External users

the following are the users of financial statements ( without categorising between internal and external users)

* management of the company

* investors

*lenders

* customer

*

* What make financial information useful to its user

The financial information is useful because it has predictive value and confirmatory value. Predictive value helps users to predict or anticipate future outcomes. Confirmatory value enable user to check and confirm earlier predictions and evaluations .

* users expectations from the financial statement

1 management of the company ( internal user )

The management of the company is the first and foremost user of financial statements. They are the one who prepare the financial statements . The management of the company looks at the financial statements in the prospective of liquidity, profitability, cashflow, assets and liabilities , cash balance, fund required ,project financing and other dat to day operational activities. Simply management needs financial statements to make decisions about the business.

2 investors ( external user )

Investors are the owners of the company , they would like to understand keep updates with the financial performance of the company. They take decisions based on the financial statements whether they need to keep invested or move out of company based on its performance

3 lenders ( external user )

Lenders like financial institutions, traditional banks, creditors would like to check the ability of the company to pay the debt. They thoroughly check the financial statements of the company and see if they would provide a loan.

4 customers (external users)

Customer needs to view the financial statements of the company from which they are purchasing goods and services. Big client would like to have long term contract with the company this they would like to work with a company that is financially stable. Further a financially stable company can provide its customers with credit sales and can delivers products and services at a discount than the market .

5 employees ( internal user )

Employees look at the financial statements at a different prospective. They would like to know if the company doing as their bonus and increments depend on the financial performance of the company.

The above are the detailed explanations

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