Who uses accounting information Cambridge IGCSE Accounting revision
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In plain words
Financial statements are not written for the accountant. Many different people read them, each looking for something different: can this business pay me, employ me, repay me, reward me?
7 things to know
- Owners want to know how profitable the business is, and whether to carry on, expand or sell.
- Managers use the figures to check performance against targets and to make decisions.
- Employees look for signs that their jobs are secure, and for evidence to support a wage claim.
- Banks and other lenders want to know whether the business can pay interest and repay a loan, and what security it can offer.
- Investors want to judge the likely return and the risk before putting money in.
- Suppliers check liquidity before allowing credit, and customers want to know that their supply will continue.
- Governments and tax authorities need the profit figure to calculate tax. Club members want to see how their subscriptions have been used.
Worked example
A bank manager is asked for a loan by a small business. Which information in the financial statements matters most to her, and why?
- Profitability: is the profit large enough to cover the interest?
- Liquidity: can the business find the cash for the repayments?
- Assets: is there a non-current asset, such as premises, that could be security for the loan?
- Existing loans: how much does the business already owe?
Tips and tricks
- Match the user to their interest. A supplier cares about liquidity, because they want to be paid soon. A lender cares about profit and security, because they wait longer.
It lands in your notebook with its questions as flashcards.
Who uses accounting information: 5 questions and answers
These are the quiz’s questions. Do the quiz first, then come back here for the ones that got you.
Which interested party is most concerned with whether a loan can be repaid?
A lender wants interest and repayment.
Why would the tax authorities want to see a business's financial statements?
Tax is based on profit.
Which ratio would a supplier look at before giving credit?
It shows whether the customer can pay its short-term debts.
Why would an employee study the employer's financial statements?
A profitable business is more likely to keep its staff.
Who would use financial statements to see how subscriptions have been spent?
Members of a club or society pay subscriptions.
Quiz
5 questions
Tap an answer and you’ll see straight away whether it’s right, and why.
Worksheet
2 questions, 4 marks. Write your answers on paper, then check them.
Who uses accounting information
Cambridge IGCSE Accounting 0452 · 4 marks · papermunch.org
Name ______________________________ Date ______________
Explain why a supplier would be interested in the financial statements of a customer.[2]
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To assess the customer's liquidity: whether it will be able to pay for goods supplied on credit, and so how much credit to allow.
Explain why employees would be interested in the financial statements of their employer.[2]
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To judge whether the business is profitable enough for their jobs to be secure. To support a claim for higher wages.
Answers: Who uses accounting information
- 1. To assess the customer's liquidity: whether it will be able to pay for goods supplied on credit, and so how much credit to allow.
- 2. To judge whether the business is profitable enough for their jobs to be secure. To support a claim for higher wages.