Accounting Is an Information System That Identifies
A objectives and the roles of financial accounting “Accounting is an information system that identifies, records, and communicates the economic events of an organization to interested users. ”1. The basic objective of accounting is to provide information to the interested users to enable them to make business decisions and “Financial statements are the primary means of communicating financial information to parties outside the business organization. ”2. Moreover, accounting can give the essential information, especially for the “external users, is given in the basic financial statements: Profit and loss statement and Balance sheet. 3 On the other hand, accounting can give addition information to the internal user: for example the marketing managers, the supervisor of production, finance directors, and the officers of company. Now, I would like to discuss the people who are using the financial reporting. I had said this on the the above paragraph. There are external and internal users. First, I would like to introduce the external users. Investors or those owners will be examples of external users. They need to rely on the financial accounting report to make a correct decision to buy, hold or sell stock.
And other external user will be the creditors. Suppliers and bankers for examples. They use the financial report to calculate the chance of giving credit or borrowing cash. The supplies and bankers will ask some questions: “Is the enterprise earning satisfactory income? ” or “Is the company profitability when compare with the competitors which are in the similar size? ” or “Will the company get enough ability to pay its? ”. All the question can be answered by the financial report. Therefore, the financial report gives a strong confidence to those supplies and the bankers.
Furthermore, taxing authorities will be another external user. Because of the IRS(Internal Revenue Service), need to find out whether the companies obeys “the tax laws. Regulatory agencies, for instances the securities and Exchange Commission and the Federal Trade Commission, want to know whether the company is operating within prescribed rules. ”4 Customers will be another external user. Through the financial report, Customer want to know information about the endurance of an company, especially when they want to have a long term investment with company.
The Government will be another external user. Why I say so? This is because governments want to know the distribution of financial resource. Moreover governments want to know the company’s activities. Governments need addition information to handle the financial activities of company. The last but not leash external user will be the public. The companies influence the public in many different channels. For instance, companies will make a lot of economic contribution to the society. There are a lot of person who are employed be the company. Financial statements may assist the public by providing information about the trends and recent developments in the success of the company and the range of its activities “5. Another external user will be the Lenders. Lenders will want to know information that let them to find whether their loans, and the interest attaching to them, will be paid when due. At this time, I would like to introduce the internal users of accounting information are managers who plan, organize, and run a business. These include a lot of person. First, Employees want to know information about their job.
The stability and profitability of their employers. This is because employees want to know about whether their employers can sustain their salaries. They are want to know information which let them to enjoy the ability of the company to provide retreat benefits and employment opportunities. Of course the manager will be another internal user. This is because manager needs to relay on the financial accounting report to set up the policy of the company. They need to base on the report to find out the profitability. Is the profit can sustain the whole company?
Through the report, the manager can change the policy of the business company in order to gain the highest profit, for example, change the supplies which are in a lower cost. The role of financial reporting is to tell those stakeholders about the financial position and the condition of the economic unit or a business company. Because of financial report provides the information, stakeholders can make decisions about future investments Financial reporting is critical in making effective stock investment decisions. When the people do not read the financial report, his or her investment will become a gambling.
The financial report includes the balance sheet, income statement, cash flow statement, retaining earning statement and financial position statement. Combining all of them, will give you a clear image of the financial condition of the company. In order to deduce the future of the companies. I think finance market needs financial reporting. However, before my discussion, I want to introduce what is finance market first. “A financial market is a market in which people and entities can trade financia:6 source of value at low transaction costs and at prices that reflect supply and demand .
As I mention before, financial reports give the financial information to all the people in the financial market, such as supplies, the lenders and shareowners. Therefore, the financial report is necessary for the financial marketing. As far as I am concerned, financial market is a fair place for trading the economic materials. Financial report will become the reference for those enterprises which ready for trading so that the enterprise can find the most suitable one for trading. Through the economic material trading.
This can make the financial market more sustainable due to the cash flow through the market. At last, as I said this before: financial accounting report show all the details of the financial position of the company: The revenue and the expense. Therefore, the company can get the information about the place where the cash spend on. Thus, the company can check out whether the allocation of the resource and redistribute the resources efficiently. Take a easy example, when a company spend extra expense on their supply such as stationery last year.
The company can spend less on it next year. And it is a sample but good example for the role of financial accounting to assist in efficient allocation. Reference:1. Accounting principles Weygandt Kieso Kimmel 2. http://memberfiles. freewebs. com/45/34/63343445/documents/Financial%20Accounting. pdf 3. http://dilipchandra12. hubpages. com/hub/Role-of-Accounting 4. http://www. ecampus. com/hospitality-financial-accounting-2nd/bk/9780470083604 5. http://www. ecampus. com/hospitality-financial-accounting-2nd/bk/9780470083604 6.
