Discuss the uses of financial accounting information by: 1) investors and 2) creditors. How do...

Question:

Discuss the uses of financial accounting information by: 1) investors and 2) creditors. How do the information needs of these two groups differ?

Financial Accounting:

Financial accounting focuses on the needs of those that are external to the organization such as investors or creditors. Financial accounting information provides external users with information about a company in the form of financial statements which include the income statement, balance sheet, and statement of cash flows. This gives them the required information to make an informed business decision.

Answer and Explanation:

1) Investors use financial accounting information to make decisions about whether or not to invest in a company. They are looking at the current and future profitability of the company. Their goal as investors is to receive the best return they can on their investment.

2) Creditors use financial information to determine whether or not to lend money to a company. They will focus on how liquid the companies assets are and what their current debt situation is. They are concerned with the companies ability to repay their debt.


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Role of Financial Accounting in Management & Decision Making

from Accounting 201: Intermediate Accounting I

Chapter 12 / Lesson 1
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