Identify at least three external users of accounting information and indicate two questions
they might seek to answer through their use of accounting information
I just need help on indicate 2 questions they might seek to answer through their use of accounting information
Certainly! Here are three examples of external users of accounting information and two questions they might seek to answer:
1. Investors: Investors are external users who provide financial resources to a company in exchange for ownership interest. Two questions they might seek to answer through their use of accounting information are:
a) What is the company's financial performance and profitability? - Investors would typically look at key financial ratios such as return on investment (ROI), earnings per share (EPS), and net profit margin to assess the company's financial health.
b) How effectively is the company using its assets? - Investors might analyze metrics like asset turnover ratio and inventory turnover ratio to understand how efficiently the company is utilizing its resources.
2. Creditors: Creditors are external users who lend money to a company on a short-term or long-term basis. Two questions they might seek to answer through their use of accounting information are:
a) What is the company's level of financial stability and ability to repay debts? - Creditors would examine financial ratios like debt-to-equity ratio, current ratio, and interest coverage ratio to evaluate the company's creditworthiness and ability to service its debts.
b) What are the company's cash flow patterns? - Creditors may analyze the statement of cash flows to assess the company's ability to generate sufficient cash inflows to meet its obligations.
3. Government Agencies: Government agencies may use accounting information for various purposes, such as taxation, monitoring compliance, economic regulation, and public policy development. Two questions they might seek to answer through their use of accounting information are:
a) Is the company accurately reporting its financial information for tax purposes? - Government agencies might review the company's financial statements, tax returns, and related records to ensure compliance with tax laws and regulations.
b) How is the company impacting the local economy? - Government agencies might analyze financial data to assess the company's contribution to employment, GDP, tax revenues, and overall economic growth in a particular region.
These are just a few examples, and the questions may vary based on the specific information needs of the external users.