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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Exercise 1-31 Decisions Based on Accounting Information

Decision-makers use accounting information in a wide variety Of decisions including the following:

1. Deciding whether or not to lend money to a business

2. Deciding whether or not an individual has paid enough in taxes

3. Deciding whether or not to place merchandise on sale in order to reduce inventory

4. Deciding whether Or not to invest in a business

5. Deciding whether or not to demand additional benefits for employees

Required:

Match each decision with one of the following decision-makers who is primarily responsible for the decision: a government (G), an investor (I), a labor union (U), business managers (M), or a bank (B).

To determine

Concept Introduction:

Accounting information is useful for the users because it provides the summarized and analytical reports at one place which helps the users to fulfil their objectives. The groups that create demand for the financial information are explained as follows:

  • Lender or creditors
  • Owners
  • Investors
  • Government
  • Employees

The user responsible for the given decisions.

Explanation

Accounting is an art of recording, classifying, analysing and summarising the financial statement to produce meaningful information and reports. Accounting information is useful for the users because it provides the summarized and analytical reports at one place which helps the users to fulfil their objectives. The groups that create demand for the financial information are explained as follows:

  1. Lender or creditors: Lender or creditors need the financial information to analyze the credibility and debt repayment capacity of the company.
  2. Owners: Owner’s require the financial information to analyze the profitability of the business and return on their investments.
  3. Investors: Investors look at the financial statement to check the returns and safety for their investment.
  4. Government: Government collected taxes on the basis of profits earned by the business. Hence it requires the financial information in order to determine the liabilities.
  5. Employees: Employees use the financial statement to know the financial position of the business to know if they can expect bonus etc...

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