If you want to know how a business is performing, financial statements provide the answer. Is there enough cash in the bank to pay the bills? Is the company making money? Have the assets been swallowed up by debt? The users of financial statements such as the balance sheet include people both inside and outside your company. Show
Meet the StatementsBecause so many people rely on financial statements for information, federal regulation, and generally accepted accounting principles (GAAP) have standardized the formats. One big difference between internal and external users' statements is that financial statements for external use must fit these standard formats. If internal users such as your company's management or owners want information, you can use any format that works for them, or you. The essential financial statements are:
Internal Users of Financial StatementsInternal users of financial statements fall into three main groups: management, owners and, sometimes, employees. In many small businesses, the owners are the managers. The key users of financial information in a partnership, for instance, are usually the partners themselves.
Because those in management have to make decisions for the business, they need different information than other internal users of financial statements. For example, they may want income statements for each product line or store rather than for the business as a whole. External User StatementsIf someone wants to know about your finances but isn't part of your business, they're external users of financial statements. They fall into many more categories than internal users of financial statements:
External users' statements have to follow GAAP or similar accounting frameworks. That doesn't mean they all want the same information. Investors may be most interested in your financial performance, while lenders might focus on your current debt load.There are various different users of financial statements, each with different information needs. The older conceptual frameworks identified groups such as government and general public as primary users. However, the 2018 Conceptual Framework has cut this back to just three key groups. The Conceptual framework lists the primary users of financial statements
as:
We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. By clicking “Accept All”, you consent to the use of ALL the cookies. However, you may visit "Cookie Settings" to provide a controlled consent. Which users need financial information to enable them to determine?Owners and investors
Stockholders of corporations need financial information to help them make decisions on what to do with their investments (shares of stock), i.e. hold, sell, or buy more. Prospective investors need information to assess the company's potential for success and profitability.
Which users need financial information to enable them to evaluate the ability of the business to pay dividends *?Owners – Owners use the accounting information for analyzing the viability and profitability of their investments. Accounting information enables the owners to assess the ability of the business organization to pay dividends. It also leads them to determine any future course of action.
Who are the user of financial information?The financial statements are used by investors, market analysts, and creditors to evaluate a company's financial health and earnings potential.
Who are the users of financial information and why do they need information?Lenders and creditors will require the information as part of their decisions about whether to extend credit to the business, and in what amounts. They will continue to have an interest in the information over time, in order to decide whether their loaned funds are at risk.
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