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Why are adjusting entries necessary Surely they cause too much delay in preparing financial statements and the financial effects on any entries made are immaterial in the long run. Respond to this criticism - Essay Example

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It also contains an overview of the company’s business activities and internal processes. The contents of the financial statements are claims, made by the managing directors, of the company…
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Why are adjusting entries necessary Surely they cause too much delay in preparing financial statements and the financial effects on any entries made are immaterial in the long run. Respond to this criticism
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Extract of sample "Why are adjusting entries necessary Surely they cause too much delay in preparing financial statements and the financial effects on any entries made are immaterial in the long run. Respond to this criticism"

Download file to see previous pages The paper seeks to show the extent of the critics’ irrationality.
The financial statements are prepared to help the users make an informed decision. There are various users of the financial statement with different needs as follows: The first kind of people who use financial information is investors. Investors provide capital to the company and are concerned about the levels of risk, and return on the investments. They need financial information to help them decide whether they should buy or sell shares of a particular company. They also need the information that enables them to assess the ability of a company to pay a cash dividend. The second category of people is employees. Employees need to know whether their employer is financially stable. They use this data to evaluate the employer’s ability to implement a fair remuneration package, provide retirement benefits and be able to offer employment chances (McCartney 2004, pp. 2-7).
Lenders use financial information to access the ability of a company to pay promptly both the principal and interest on loans. Suppliers and other trade creditors need the financial information to enable them to determine whether they will receive their accrual payments without default. Customers are interested in financial information to determine the life span of an enterprise, especially when they have a long-term association with a company such as the presenting solutions to both short and long-term problems. Government and their agencies use the financial information to regulate the activities of an organization and to determine tax policies. They also use the information to compute national income. Lastly, the public use financial information to determine the trends and recent development activities of an enterprise; to help them assess the possibility of a significant economic contribution to an organization (Dang, Marriott & ...Download file to see next pagesRead More
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