Financial and Cost Accounting, Taxes and Economic

From the previous post we already learn about the meaning of accounting. Accounting as a communicating tool informs accounting information to who needs the data. Usually we will use financial statement as a communicatng tools.

From wikipedia we can know that Financial statements provide an overview of a business' financial condition in both short and long term. There are four basic financial statements:

1. Balance sheet: also referred to as statement of financial position or condition, reports on a company's assets, liabilities, and net equity as of a given point in time.
2. Income statement: also referred to as Profit and Loss statement (or a "P&L"), reports on a company's income, expenses, and profits over a period of time.
3. Statement of retained earnings: explains the changes in a company's retained earnings over the reporting period.
4. Statement of cash flows: reports on a company's cash flow activities, particularly its operating, investing and financing activities.

For large corporations, these statements are often complex and may include an extensive set of notes to the financial statements and management discussion and analysis. The notes typically describe each item on the balance sheet, income statement and cash flow statement in further detail. Notes to financial statements are considered an integral part of the financial statements.

The objective of financial statements is to provide information about the financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions. [F.12-14]

Actually who needs the financial statement? In this case we can divide into 2 groups, INTERNAL USERS and EXTERNAL USERS. Who are they?

1.Internal Users:
a.Owners and managers: they need financial statement to make some decisions relate with the continued of their business.It will be also a report for the stockholder.
b.Employee: they need the report in order knowing about the compensation, promotion and rankings that have to be paid to them.

2.External Users:
a.Prospective Investors: they need the financial statement to assess the viability of investing in a business thus providing them with the basis in making investment decisions.
b.Financial institutions (banks and other lending companies) use them to decide whether to grant a company with fresh working capital or extend debt securities (such as a long-term bank loan or debentures) to finance expansion and other significant expenditures.
c.Government entities (tax authorities) need financial statements to ascertain the propriety and accuracy of taxes and other duties declared and paid by a company.
d.Media and the general public are also interested in financial statements for a variety of reasons.

Sources: Wikipedia & THE FRAMEWORK FOR THE PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS