Question

Accounting: The Language of Business Discussion Questions 1. What types of people or organizations are interested in financial information about a firm. and why are they interested in this information? 2. What is the function of the Securities and Exchange Commission? 3. What are the three types of business entities, and how do they differ? 4. Why is it important for business records to be separate from the records of the business's owner or owners? What is the term accountants use to describe this separation of personal and business records? 5. What is the purpose of the Financial Accounting Standards Board? 6. What groups consistently offer opinions about proposed FASB statements? 7. What are the three major areas of accounting? 8. What types of services do public accountants provide? 9. What is tax planning? 10. What are the major functions or activities performed by accountants in private industry? 11. What led to the passage of the Public Company Accounting Reform and Investor Protection Act of 2002? 12. What is the purpose of the Public Company Accounting Oversight Board? PROBLEM Critical Thinking Problem Which Type of Business Entity? Since graduating from college five years ago, Ned Turner has worked for a national chain clothing stores. Ned has held several positions with the company and is currently manager branch store. Over the past three years, Ned has observed a pattern in men who purchase suits. He believe majority of men's suit purchases are black, brown, blue, gray, and olive. He also notices that F shirts are quite fashionable, but few stores carry a wide color selection. Since he has always anan 2 shon that sells suits that are black, brown, 1 all

Answer 1

1) The objective of financial information is to provide information to users for decision making in a firm.

Following are interested in financial information:

I) owners and investors: Investors need the financial information for assessing the company's potential for success and profitability.

Owners need financial information to determine the profitability of his firm to confirm whether to continue, improve or drop the business.

Stockholders need financial information to help them make decisions on what to do with their investments, whether to hold or sell their shares or buy new shares.

2) Management and firms: Management is made up of professionals who are entrusted with the responsibility of operating the business or a part of the business. They acts as agents of the owners.

3) Lenders: Lenders of funds such as banks and other financial institutions are interested in the company's ability to pay liabilities upon maturity.

4) Trade creditors or suppliers: like the lenders, trade creditors or suppliers are interested in the company's ability to pay obligations when they become due. They are nonetheless especially interested in the company's liquidity--its ability to pay short term obligations.

5) Government : Government bodies of the state, especially the tax authorities, are interested in an entity's financial information for taxation and regulatory purposes. Taxes are computed based on the results of operations and other tax bases. In general, the state would like to know how much the taxpayer makes to determine the tax due thereon.

6) Employees: Employees are interested in the company's profitability and stability. They are after the ability of the company to pay salaries and provide employees benefits. They may also be interested in its financial position and performance to assess company expansion possibilities and career development opportunities.

7) Customers : When there is a long term involvement or contract between the company and its customers, the customers becomes interested in the company's ability to continue its existence and maintain stability of operations. This need is also heightened in cases where the customers depend upon the entity.

8) General public : Anyone outside the company such as researchers, students, analysts and others are interested in the financial statements of a company for some valid reason.

9) Internal and external users :

Internal users use financial information to make decisions for company's operations.

External users use informations for indirect financial interest.