In every book of financial accounting, the authors explain in detail on users and uses of financial accounting. Information such as the cash flow statement, income statement and asset are important documents that are kept to ensure that the company is registering everything correctly. Users of such accounting information are divided into two categories, internal and external users.
Internal users of accounting information are the managers who organise, manage and daily routine of business plan. They are directly connected with the company and use managerial accounting, which includes in-depth reports, used to determine weaknesses and strengths. For example, internal users should include management, finance, marketing and human resources. An example of a human resource manager would be that he or she has to guarantee the rights of their employees using salary information along with the other data. Important questions arise with internal users. An application for a marketing manager would include, “what price for an Apple I pad will maximize the net revenue of the company?”
External users are groups of individuals who are outside of organizations, and use accounting for financial decisions. An example of an external user would include a creditor which uses the accounts to evaluate the risks of granting credit. Taxing authorities, investors and customers are also external users. External users would receive limited financial information from a company like budget. These statements are the backbone of financial accounting and give external users enough information to inform them of the company’s economic position. Assets, liabilities, revenues and expenses are of great importance for users of accounting information. For commercial purposes, it is customary to organize this information in the form of four different budgets; balance sheet, income statement, useful education and cash flow statement.
The purpose of the income statement is to report the success or failure of the company’s operations for a period of time. Income statement lists the revenues of the company followed by it expenses. A key point to remember when preparing an income statement is that the amounts received from the issue of shares are not income and amounts paid out as dividends are not expenses. Therefore they are not reported on the income statement. Income statement Shows the amounts and causes of changes in profits during the period. The time period is equivalent to the time covered on the income statement. Users of financial statements to evaluate the dividend payment practices by monitoring the retained earnings statement. Some investors look for companies that have a history of paying high dividends, while others look for companies that reinvest profits to boost the company’s growth.
The balance sheet is based on this equation: assets = liabilities + equity. This equation is referred to as the basic accounting equation. Budget stock report assets, liabilities, and owners of the company. Is a financial company at a specific point in time. Credits are divided into two categories: claims of creditors, which are called liabilities and owners ‘ demands, which are called stockholders equity. On the balance sheet lists the company’s financial position, starting at a specific date in that order: goods first, then liabilities and shareholder’s equity. A note to self about the net is that it consists of ordinary shares and impute. Finally, there is the statement on cash flows. The purpose of the statement of cash flows is to provide financial information on receipts and payments in cash to a business for a period of time. Users are interested in the statement of cash flows because they want to get a better understanding of what is happening to the most important asset of a company. The statements of cash flows answer these questions: 1) case is the origin of the term? 2) How money was used during the period? 3) what was the change in cash balance during the period? Also does the statement of cash flows and the money generated reports that are used in the following activities: financing, investment and operational. All companies involved in these three types of activity.