how much to borrow Financial Accounting Reports Financial Statements o Prepared

How much to borrow financial accounting reports

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how much to borrow - Financial Accounting Reports (Financial Statements): o Prepared periodically to provide information to people not employed by the business o These external financial statement users aren’t given access to detailed internal records of the company, so they rely extensively on the financial statements. o 4 main groups of external users are (1) creditors, (2) investors, (3) directors, and (4) government. 1. Creditors: Suppliers, banks, and anyone to whom money is owed. Suppliers want to be sure they will be paid for the goods and services they deliver, so they will evaluate a company’s financial statements and check its credit history before allowing it to buy on credit. Banks use financial statements to evaluate the risk they will not be repaid the money they’ve loaned to a company. They want periodic financial reports 2. Investors: Existing and potential stockholders Stockholders look to accounting information to assess the financial strength of a business and, ultimately, to estimate its value 3. Directors: Short title for the members of a company’s “board of directors.” The stockholders of public companies or large private companies elect directors to oversee the company’s managers. 4. Government: Look closely at companies’ financial statements The Securities and Exchange Commission (SEC): functioning of stock markets The Internal Revenue Service (IRS): ensure taxes are computed using correct amounts
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THE BASIC ACCOUNTING EQUATION - What a company owns must equal what a company owes to its creditors and stockholders. - Assets = Liabilities + Stockholders’ Equity - Assets : o An economic resource presently controlled by the company o Has measurable value and is expected to benefit the company by producing cash inflows or reducing cash outflows in the future o Cash, supplies, equipment, and software o Nike and Target have an asset called inventory, which consists of merchandise held for sale - Liabilities: o Measurable amounts the company owes to creditors o Note Payable: borrowing from a bank o Account Payable: borrowing on credit from another company o Salaries and Wages Payable: owes salaries and wages to employees o Taxes Payable: owes taxes to governments o If a company goes out of business, liabilities must be paid before any amounts are paid to stockholders - Stockholders’ Equity : o Represent the owners’ claims on the business.
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