Introduction to Financial Accounting

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CHAPTER 1: INTRODUCTION TO FINANCIAL ACCOUNTING 1.1 USE, PREPARATION AND CONCEPTS * Use: The information derived from financial accounting is used by managers, investors, bankers, financial analysts and accountants, helping them to learn how to use information effectively and to do their jobs better. This information is essential to accountants for the services they provide. * Preparation: to be effective users of accounting information, people need to know something about how and why the information is prepared. Accountants’ expertise is about the how and why. * Concepts: Users, accountants and accounting form a connected system. The demand for useful information shapes how financial accounting information is prepared.…show more content…
* Credible means that the information in the financial statements appears to be sufficiently trustworthy and competent. Credibility is a relative condition as there is a cost-benefit issue here: attempting to perfect the report is costly and may affect an enterprise’s performance and position if they strived to achieve this perfection. * Periodic means the users can expect report on some regular basis. Usually, the longer the wait, the more solid the information. But imprecision is accepted in return for reports with timely, decision-relevant information. MAIN GROUPS OF USERS * Owners: individual business owners, individual investors (shareholders), people with quasi-ownership interests. Investors purchase shares in hopes of gaining in two ways: receiving a portion of the company’s profit in dividends, and selling the shares at a later time for a higher price than they paid. * Potential owners: the same sort of people as owners, but do not have funds invested in the enterprise at the moment, but are considering to do so. * Creditors and potential creditors: suppliers, banks, bondholders, employees and others who have lent money to the enterprise, who are owed funds in return for supplying something of value, or who are considering taking on such a role. Creditors do not have the legal control of the enterprise that owners have, but may have a large say
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