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Financial Statements - Lecture 1 - Uses and Users - YouTube
Channel: Else Grech Accounting
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hi Al's here and today we'll be talking
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about the uses and the users of
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accounting information what is
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accounting accounting is an information
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system that identifies and records and
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organizations transactions and then
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communicates them to a wide variety of
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interested users a knowledge of
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accounting is relevant and useful in
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whatever career you decide to pursue be
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it marketing or financial analysts every
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position requires some knowledge of
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accounting or an understanding of how
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your actions in your position will
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affect the business overall both their
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profitability and their progress as they
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move forward you must be able to analyze
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the information from the past so you can
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adjust what you do in the future to
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ensure the company you own or work for
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is profitable you need accounting
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information to make informed decisions
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about how to move forward so just who
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are the users of financial information
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and what information do they need to
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make decisions users of accounting
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information are individuals who have
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questions about an organization and they
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need information to find answers and
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make smart decisions they analyze what
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happened in the past in order to predict
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what may happen in the future to do that
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they need detailed accounting
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information on a timely basis there are
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really two types of users of accounting
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information internal and external users
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internal users plan organize and run
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businesses they ask questions such as
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what price should we charge for our
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product or service should we expand on
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global markets or not what products are
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profitable and which should be
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discontinued internal users have access
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to a large amount of information and
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they will not be the focus of this
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course external users are outside of an
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organization they depend on financial
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statements in order to make informed
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decisions investors lenders and other
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creditors are the key external users of
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accounting information
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make resource allocation decisions that
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means that their decisions generally
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involve the giving up or receiving of
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cash goods or services so what questions
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do the main external users have well an
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investor might ask if a business is
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profitable enough to give them a return
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on their investment a lender might ask
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if a business will be able to repay a
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loan plus interest when the loan comes
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due and other creditors might ask if the
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bills a company has outstanding will be
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paid in the future
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there are other external users that
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might also have questions employees and
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labor unions want to know if they will
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receive higher wages or better benefits
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customers are interested in whether a
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business will honor their warranties in
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the future tax agencies like Revenue
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Canada want to know if an organization
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is paying appropriate taxes regulatory
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agencies like the Securities Exchange
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Commission want to know if an
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organization is in compliance with their
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rules and finally financial analysts
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want to know if a company is one that
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they want to recommend to their clients
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but the key external users of accounting
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information are still investors lenders
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and other creditors this is because they
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are the users who make decisions about
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resources it's important to check your
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understanding and the best way to do
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that is to test yourself periodically
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you're going to see multiple choice
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questions I recommend that you pause the
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video and answer the questions yourself
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before you check to see if you've got it
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right determining if a company can pay
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its obligations as they come due is the
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primary objective of which of the
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following users the primary objective of
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investors competitors and labor unions
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is not whether a company can pay its
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bills when they come due yes those
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external users are concerned about that
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but it's not their primary concern
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creditors all so-called lenders have a
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primary objective and that is whether
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the company is able to pay their bills
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as they come due
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what about ethics and accounting
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information in order for accounting
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information to be useful it must
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represent the actual economic
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of an organization what we call the
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underlying truth preparers of accounting
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information have extensive rules of
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conduct to guide what they report when
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they report it and how they present it
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to interested users without ethics in
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accounting the information produced by
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accounting information systems would be
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useless for decision-making following
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incorrect information would result in
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not only possibly a financial crisis but
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also reduced confidence in the
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information provided by accounting
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systems ethics and accounting is
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critical to the health of a business and
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also financial markets and it's a key
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focus when preparing accounting
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information in the next video we'll be
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talking about the three main types of
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organizations and the main activities
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that businesses engage in
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