Podcast
Questions and Answers
Which financial statement shows the transactions between a business and its owner(s)?
Which financial statement shows the transactions between a business and its owner(s)?
- Statement of Financial Position
- Statement of Changes in Equity (correct)
- Income Statement
- Cash Flow Statement
Limited liability companies are generally required to prepare a separate statement of changes in equity.
Limited liability companies are generally required to prepare a separate statement of changes in equity.
True (A)
Who are generally considered the most important users of financial statements?
Who are generally considered the most important users of financial statements?
Existing and potential investors and lenders
Entities affect members of the public in a variety of ways, for example, they may make a substantial contribution to a local economy by providing ______ and using local suppliers.
Entities affect members of the public in a variety of ways, for example, they may make a substantial contribution to a local economy by providing ______ and using local suppliers.
Why do taxation authorities need information about business profits?
Why do taxation authorities need information about business profits?
All users of accounting information will have their information needs equally satisfied by the published financial statements.
All users of accounting information will have their information needs equally satisfied by the published financial statements.
What type of 'special' access to information do managers have that other users typically do not?
What type of 'special' access to information do managers have that other users typically do not?
Financial statements are primarily prepared to meet the information needs of existing and potential ______ and lenders.
Financial statements are primarily prepared to meet the information needs of existing and potential ______ and lenders.
What type of information would suppliers most likely be interested in?
What type of information would suppliers most likely be interested in?
The only reason a business needs to produce financial statements is if it is being run inefficiently.
The only reason a business needs to produce financial statements is if it is being run inefficiently.
What do shareholders want to assess by reviewing a company's accounting information?
What do shareholders want to assess by reviewing a company's accounting information?
What is the role of the International Accounting Standards Board (IASB)?
What is the role of the International Accounting Standards Board (IASB)?
Some companies provide, voluntarily, specially prepared financial information for issue to their employees. These statements are known as ' ______ reports'.
Some companies provide, voluntarily, specially prepared financial information for issue to their employees. These statements are known as ' ______ reports'.
Managers utilize the management accounting system to obtain a large amount of information about the costs and profitability of individual products or parts of the business.
Managers utilize the management accounting system to obtain a large amount of information about the costs and profitability of individual products or parts of the business.
What information do employees of a company want to know about the company's financial situation, and why?
What information do employees of a company want to know about the company's financial situation, and why?
What is the most likely reason a bank would want to examine a company's accounting information?
What is the most likely reason a bank would want to examine a company's accounting information?
The taxation authorities want to know about business ______ in order to asses the tax payable by the company.
The taxation authorities want to know about business ______ in order to asses the tax payable by the company.
Trade contacts includes suppliers who provide goods and services to the company on credit and customers who purchase the goods or services provided by the company.
Trade contacts includes suppliers who provide goods and services to the company on credit and customers who purchase the goods or services provided by the company.
Describe what Shareholders of a company want to know.
Describe what Shareholders of a company want to know.
Which type of user would be most interested in if an entity contributes to a local economy by providing employment?
Which type of user would be most interested in if an entity contributes to a local economy by providing employment?
Flashcards
Statement of Changes in Equity
Statement of Changes in Equity
A report showing transactions between a business and its owner(s), including additional capital invested and drawings.
Users of Financial Statements
Users of Financial Statements
Various groups need information about a business's activities for different reasons.
Need for Financial Statements
Need for Financial Statements
Businesses produce financial statements to inform various groups about their activities and financial health.
Why managers need accounting information?
Why managers need accounting information?
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Why shareholders need accounting information?
Why shareholders need accounting information?
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Why trade contacts need accounting information
Why trade contacts need accounting information
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Why providers of finance need accounting information
Why providers of finance need accounting information
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Why taxation authorities need accounting information
Why taxation authorities need accounting information
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Why employees need accounting information?
Why employees need accounting information?
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Why financial analysts/advisers need accounting information
Why financial analysts/advisers need accounting information
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Why government/agencies need accounting information?
Why government/agencies need accounting information?
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Why the public need accounting information?
Why the public need accounting information?
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Primary Focus of Financial Statements
Primary Focus of Financial Statements
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Study Notes
- A business is a separate entity from its owner(s)
- A statement of changes in equity shows transactions between a business and its owner.
- Sole traders often include this information in the 'capital' section of their statement of financial position.
- Limited liability companies are normally required to prepare a separate statement.
- Understanding the purpose of the statement of changes in equity is paramount.
Users of Financial Statements
- Various groups of people need information about a business's activities.
- Each group has different information needs.
- Existing and potential investors and lenders are key users of financial statements.
The Need for Financial Statements
- Businesses provide information about their activities for various groups.
- Large companies are of interest to many people, especially those who can buy and sell shares.
Users of Accounting Information
- Managers need financial data to manage efficiently and make effective decisions about the company's current financial situation.
- Shareholders assess company and management performance, determining profitability and potential profit withdrawal.
- Trade contacts, including suppliers and customers, assess the company's ability to pay debts and remain a reliable source.
- Providers of finance, such as banks, need assurance of interest and principal repayment.
- Taxation authorities need profit information to assess taxes.
- Employees need information about the company's financial health for job security and wage prospects.
- Financial analysts use data for advising investors.
- Governmental agencies monitor resource allocation and compile national statistics
- The public is interested in effects on the local economy and environment.
- Financial statements summarize data to meet various needs, although not all users will be equally satisfied.
Needs of Different Users
- Managers require extensive, 'special' inside information for planning and control.
- Managers can access internal accounting data for details like product costs and profitability, unavailable to other users.
- In addition to management information, financial statements are prepared to benefit other user groups.
- National laws may require some accounting information be provided for shareholders and the public
- National taxation authorities rely on financial information to make tax assessments
- Banks may want forecast for future cash flows as a pre-condition of granting an overdraft.
- The International Accounting Standards Board (IASB) issues International Financial Reporting Standards (IFRSs).
- The standards require companies to publish certain additional information.
- Accountants must ensure financial statements conform to IFRS requirements.
- Some firms voluntarily provide employee reports.
- Shareholders and providers of finance use information to decide whether to invest or lend.
- These external users rely on published financial statements.
- Financial statements are primarily prepared to meet the needs of existing and potential investors and lenders in most developed countries, including Australia.
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