Explain How the Fundamental Accoungting Concepts Are Used in Preparing Financial Statement

1549 WordsMay 10, 20117 Pages
LSC BABS SEMESTER 2 Business Accouting Mr S. Palan FINANCE ACCOUNGTING ASSIGNMENT 1.Explain how the fundamental accoungting concepts are used in preparing financial statement. Use examples to illustrate the application of the fundamental accounting concepts. Accouting is the language of business and it is used to communicate finance information. In order for that information make sencse, accouting is based on 10 fundamental concepts. These fundamental concepts then form the basic for all of the Generally Accepted Accouting Principles (GAAP). And these are 10 fundamental concepts:the Business Entity Concept, Monetary Concept, Historical (Cost) Concept, Going Concern Concept, Dual Aspect Concept, Accrual Concept, The…show more content…
2.Critically evaluate the role of financial accouting in aiding the decision making processes of 4 different non-management stakeholder group. Your anwers should include an explanation of the nature of the decisions each of the stakeholders are likely to be taking in relation to their interactions with a business. I would chose 4 different non-management stakeholder groups below to critically evaluate the role of financial accouting in aiding the decision making processes: Investors: Investors are the people who invest the money for business so they are concerned about risk and return in relation to their investment. So they require informaiton to decide whether they should continue to invest in a business. They also need to beable to assess wether a business will be able to pay diviend, and to measure the performance of the business management overall. The key accouting information for an investor is therefore: -Information about growth-sales, volumees -Profitability (profit margins, overall level of profit) -Investment (amount invested, essets owned) -Comparative informmtion of competitors Lenders Lenders are the people who lend money in a business as : banks and loan stokholders so they require information that helps them determined whether loans and interest will be paid when due. The key accouting information for lenders is therefore: -Cash flow -Security of assets against which the lending may be secured -Investment

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