ACCOUNTING
C213 Study Guide - Solution.docx

Lenders banks use companies financial statements in

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Lenders Banks use companies' financial statements in making decisions about commercial loans. The financial statements are useful because they help the lender predict the future ability of the borrower to repay the loan. Investors Investors want information to help them estimate how much cash they can expect to directly receive from the business in the future if they invest in it now. Company Management Managers use financial accounting data to formulate company goals, to compute bonuses for employees, and to illuminate company weaknesses. Suppliers and Customers Suppliers, customers, and employees use financial statements to tell them about the long-run prospects of a company. Employees 1
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Financial statement data, as mentioned earlier, are used in determining employee bonuses. In addition, financial accounting information can help an employee evaluate the employer's ability to fulfill its long-run promises, such as for pensions and retiree health care benefits. Financial statements are also important in contract negotiations between labor and management. Competitors Competitors use financial accounting information to reveal strategic opportunities within their industry. Government Agencies Government agencies use financial statement data to bolster political and regulatory positions for and against companies. Politicians Politicians use financial statement data to bolster political and regulatory positions for and against companies. The Press Reporters use financial accounting data as background information and to indicate which companies are undergoing significant changes in financial status. (Reference Topic 1.3) Identify U.S. accounting rules and their origins. The Financial Accountings Standards Board (FASB) sets accounting rules for the private section in the U.S.. It is a private, non-profit body established and supported by the joint efforts of the U.S. business community, financial analysts, and practicing accountants. The FASB has no legal power to enforce the accounting standards it sets but maintains its influence by carefully protecting its prestige and reputation. The standards it sets are called Generally Accepted Accounting Standards (GAAP). These are a common set of accounting principles, standards, and procedures that companies must follow when they compile their financial statements. (Reference Topic 1.4) Securities and Exchange Commission (SEC) has the legal authority to set accounting rules, but has deferred that responsibility to the FASB in most cases. The SEC regulates U.S. stock exchanges and seeks to create a fair information environment in which investors can buy and sell stocks without fear that companies who sell stocks to the general public are hiding or manipulating financial data. (Reference topic 1.5) 2
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Differentiate the roles of important accreditation organizations.
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  • Spring '16
  • Kenneth Cassell
  • Balance Sheet, Generally Accepted Accounting Principles

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