Question

Discuss how accounting information facilitates transactions between financiers and those who require financing.

Answer 1

Accounting information bridges the the transactions between the creditors and borrowers because it is a source of data that can be used for framing of lending agreement between both creditor and the borrower.

A creditor can examine the borrower company's income and financial statements such as cash flow statement. This examination can be done for the past few years to verify whether the company has the creditworthiness to lend the money. This risk assessment will help the parties on agreement of interet rates which is reflected on the financing agreement.

Above all this the creditors can also use these accounting information for drafting of the loan agreement. Financial health of a company gives an assurance to the creditor that the company shall repay the loan availed.

The borrowers shall also analyse their financial results and financial performance of their company and can decide the appropriate amount of loan to be availed from the creditors. These transactions also help them analyse the affordability of interest rates charged by the creditor.