Financial accounting - Essay Example

sidered as an accounting information but the dedication of its workers will not be since the latter involves judgment and cannot be attached with a material value. The accounting information shown in financial statements has two purposes (Introduction to accounting, 2006): To report on the financial position of the business and assess the financial performance of the business. Besides, there are internal uses of accounting information which are related to managerial accounting. These are to keep a track of day-to-day running of the business and make decisions about the future.

Investors are important stake holders of a company who are concerned with the risk and return on the amount invested in the business. According to Tutor2u (Users of Accounts, 2006), their most crucial concern is the level of dividends the business will be able to pay them and will it increase in future. Thus the main information concerning them is information relating to growth (sales), profitability (absolute profit and margin), returns (on investment and on assets) and share prices. They also compare this information with similar figures relating to other companies.

From a practical standpoint, investors are the most concerned stakeholders relating to company’s performance. Lenders to company which include banks and other organizations need to asses whether their amount will be paid back on time. So, accounting information which is useful to them includes the cash flow of the business and the security of assets which have been presented against the loan (Users of Accounts, 2006). Similarly, creditors who sell on credit to the business need to judge the short-term liquidity position.

They are concerned with working capital of the business, cash flow and the payment policies. Customers or trade-debtors of the company also use accounting information to asses how profitable will their relationship be in the long term. The accounting information they use to assess this includes sales