The importance of accounting to the stakeholders of an organisation Accounting must be understood as a complete, consistent, logical system for collecting and processing data on the assets of the company and its activities, as well as the presentation of economic and financial information. The primary objective of accounting is the development and provision of information about assets components and conducted by the company business. This information is used primarily by: * Board business to know the financial position, resource efficiency and equity, financial performance, tax burden, an individual 's position in the market, as well as for decision-making both operational and strategic, * Business environment, which is …show more content…
Employees and their trade unions use financial information to assess the ability of the firm to continue to provide employment and to reward employees for their efforts. Although these do show up in the firms accounts employees should realise that each of the above depend upon the prosperity and stability of the firm that employs them. Therefore they should be interested in the financial accounts of the business. Customers main interest in accounts probably lies in assessing extent to which profits have been made at the expense of customers in terms of high prices. Suppliers will be interested in the accounts of customer firms to determine whether or not to give trade credit. For the important interested we can include profits, cash flow, the liquidity position, solvency and the extent of the firm’s existing liabilities. They use the financial information to assess the ability of the business to pay for the goods and services provided. Creditors are a person or business organisation that has lent money to the firm or is owed money for goods or services supplied on credit. They are primarily interested in the profitability of the firm, the extent of its liabilities and its liquidity. Existing and potential creditors have to: decide whether or not to lend more money, determine the liquidity and solvency of the firm to assess likelihood of repayment. So creditors use accounts to assess the ability of the business to meet its obligations and to pay interest and
In accounting there is much to be learned, about the financial aspects of a business. In the past five weeks I have learned the importance of financial reports and how they relate to the success of an establishment. These reports may include balance sheets and income statements, which help accountants and the public grasp the overall financial condition of a company. The information in these reports is really significant to, managers, owners, employees, and investors. Managers of a business can take and deduce financial
As you can see from this mock Balance Sheet of our business, it (1) has enough assets to pay our debts when they are due, and (2) the claims of short and long-term creditors on
Creditors take the biggest risk when lending money due to the fact that they have all the skin in the game and are taking a calculated risk. The review of the three aforementioned financial statements seem to be the clearest way to come to a conclusion about whether or not a creditor should lend a company money.
Creditors normally focus on the liquidity or solvency of the borrower in terms of current ratio and quick ratio, which indicate whether the company has enough working capital to cover the short-term debts. Myer will enter into a syndicated facility agreement to refinance the existing borrowings of the Myer Group. Besides, creditors are interested in the business risks the company might undertake, which indicate the possibility that the company might be unable to pay back the long-term liability in the future. From this point, the expectation on high return on investment and high profitability in the long run make the creditor’s interest aligned with shareholders’ value.
Creditors: These are the entities who lend money to an organisation(s) with the expectation that it will be repaid.
Assess the degree to which the firm’s accounting reflects the underlying business reality. Identify accounting distortions and evaluate their impact on profits and the sustainability of profits.
Debtor’s collection period shows the link between the number of debtors and how long on average it takes the business to collect debts.
Among the tools required for every business to survive and thrive, the ability to maintain a regular self-examination holds an indispensable place. The size of the business in question is almost of no consequence, only the potential complexity of the self-examination changes. A prime tool for such self-examinations is the family of related financial reporting that has become nearly universal in western businesses: the income statement, the balance sheet, and the statement of cash flows. This trio of reports enables management and owners to carefully examine the holdings and liabilities of their business so they may make
An obligation that legally binds an individual or company to settle a debt. When one is liable for a debt, they are responsible for paying the debt or settling a wrongful act they may have committed. For example, if John hits Jane 's car, John is liable for the damages to Jane 's vehicle because John is responsible for the damages. In the case of a company, a liability is recorded on the balance sheet and can include accounts payable, taxes, wages, accrued expenses, and deferred revenues. Current liabilities are debts payable within one year, while long-term liabilities are debts payable over a longer period.
Employees should also be presented with the financial statements of the company so that they can realize the fruits of their efforts. With knowledge come great rewards. The impact of knowing the financial status of the company provides incentives for employee performance; work hard and get a bonus. Also, the offering of financial statement will show the employees are not separate from the work that has help to mold and maintain operations but instead include them in what is going on to offer suggestions for improvement. This makes the workers to feel appreciated and increase their efforts in helping the
Due to this users of the financial statements identifies the merits and demerits of the entity, and also liquidity and solvency including financing.
All entities that hold financial assets or commitments to extend credit that are not accounted for at fair value through profit or loss
Question: Taking into account Figure 3.4 on page 45 of your textbook (Stakeholder Typology: One, Two, or Three Attributes Present) discuss the ‘Ethics in Practice case’ on page 46 (Are Plants and Flowers Stakeholders? Do they have rights?)
Accounting can be defined in a number of ways, but I chose the book definition, which is; Accounting is an information system that provides reports to stakeholders about the economic activities and condition of business. The person in charge of accounting is called the accountant. The accountant is typically required to follow a set of rules and regulations. These rules and regulations are called the General Accepted Accounting Principles. Throughout these next few paragraphs, I will be giving you the history and evolution of accounting, and I will be explaining who the stakeholders are and what type of information they require, and I will be explaining the role of accounting in business. There will be many examples and type of business