Users of Accounting and Decision Making

Question 1

What is the Purpose of Accounting

Answer 1

Achieved Level Answer (1st sentence)
To provide users with financial (and non financial) information that can be used to make a decision by that user.

Merit Level Answer (2nd sentence)

The next sentence must use the users name/occupation and provide a relevant decision they can make using the financial statements.

eg The banker will use the Statement of Financial Position to see if enough Assets to sell to repay the loan should the business fail

Question 2

Name a decision that a owner can make using the Income Statement

Answer 2

Remember you need to have DECIDE in your answer and a relevant component in the answer : Income statement you mention Income Expenses or Net Profit but not Assets Liabilities and Equity

1 To decide if enough Net Profit for the year to repay the installments of a new loan

2 To compare this years expenses like administration fees to see if they are less than last year and decide how to reduce them e.g find a cheaper internet provider with the same level of data allowance and speed.

3 To compare the business income to their competitors to decide if they need to advertise more to attract customers away from competition