LE Flashcards
Within the business who
uses accounting info
uses the info for PED
Planning
Evaluating past results
Decision making
Internal
Outside of the business who
uses accounting info
uses the info to MEE
Make decisions
Evaluate a company’s
performance
Ensure their funds are safe
and growing
External
Internal
Owner, Manager, Employee
Income, Expenses, and Taxes
used to record the business’ incomes and expenses, keep track of business transactions, and employees’ salary. On top of paying the personal tax, the owner also pays business tax and compensation taxes of employees.
Makes Final Decisions
to assess the performance of the business. This helps them to make decisions such as whether to continue the business, make more investments, control spendings, or declare bankruptcy.
Financial Statements - used to see the business’ overall financial condition.
financial statement
Owner
Financial statement parts
balance sheet, income statement, cash flow statement
Budgeting and Financial Planning
Effective budgeting helps managers allocate resources wisely, control costs, and plan for future needs, ensuring financial stability and alignment with organizational goals.
Decision Making
Accounting provides essential financial data
> enables managers to make informed decisions on budgeting, pricing, investment, and strategy, driving business growth and profitability.
The income statement - the most important tool, it provides key insights into profitability, performance, and financial health, guiding critical decisions on cost control, pricing, and resource allocation.
Manager
It provides key insights into profitability, performance, and financial health, guiding critical decisions on cost control, pricing, and resource allocation
Income statement
At all levels, from entry-level
staff to senior management, use
accounting data to make informed
decisions about their work.
Make informed decisions:
May use accounting
information for specific events, such as
when negotiating a new contract,
applying for a loan, or making a major
purchase
are interested in the company’s
financial performance because it can impact
their job security. When a company is doing
well financially, employees feel more secure
in their positions
Job Security
Entering financial data into accounting
software or ledgers, categorizing each
transaction according to its type (e.g.,
sales, expenses, payments)
Employee
External
Supplier, Banker, Customer, Investor, Potential Investor, Tax Authorities
Credit Worthiness
These people use accounting information
to determine the credit-worthiness of
the customers.
Based on this assessment, they decide
whether they should offer goods and
services on credit to its customers.
use accounting information to
evaluate the credit worthiness of a
business before extending trade credit.
Supplier
Loans
- When lending money, accounting information helps
them decide if they should grant a loan to a
company.
Risk Assessment
use Risk Assessment to find
potential risks that can affect them.
They use accounting to analyze their
current financial stability and minimize the
effect of risks.
Banker
help companies identify opportunities to
improve profits and manage costs.
It can also help companies segment
them based on profitability and cost.
Their feedback can influence how
businesses adjust their pricing or product
offerings, which then impacts the business’s
accounting strategies in budgeting, cost
management, and financial forecasting.
Customer
can use financial statements
to determine a company’s value,
profitability, and risk before further
investing in them.
use accounting data to gauge
the overall financial health of a
company, such as profitability, liquidity,
and solvency. This helps them make
decisions about buying, holding, or
selling their shares.
Investor
Before investing, they goes through the financial statements of a business.
They would want their investment grow and progress over time.
It is to make sure that they are safe to invest, know the ups and downs of the investment.
As business owners make big decisions, they would also use accounting to check the financial background of them.
It is to make sure that they are capable of investing, the amount they could invest, and where else they are investing.
Potential Investor
Accounting records, particularly financial statements, help them ensure that businesses are accurately reporting their income, expenses, and profits in compliance with tax laws.
Verify Tax Compliance
Audit and Investigate
Accounting records are examined during tax audits to identify discrepancies, fraud, or errors in tax filings, ensuring that businesses are not underreporting income or overstating
expenses.
Tax Audits
To review a business’s financial records and ensure that taxes are being accurately reported and paid.
Tax Authorities
