Users of accounting information and the financial statements Cash received from

Question

Users of accounting information and the financial statements

Cash received from issuance of note Cash paid for dividends Cash received from issuance of capital stock Cash collected from customers Cash pad for income taxes Following arc a number of users of accounting information and examples of questions they need answered before making decisions. Fill in each blank to indicate whether the user is most likely u, find the answer by looking at the income statement (IS), the balance sheet (BS), the statement oi retained earnings (RE), or the statement of cash flows (SCF). Refer to Kellogg's balance sheet reproduced in the chapter.

Explanation / Answer

Though internal and external users are two different groups of people, they do have one thing in common. Both of these types of users rely on the same types of accounting information - the financial statements. Owners use information on the financial statements to see how well the company is performing. They need to know if the company is profitable, or if there are areas that need to be addressed in order to make the company more profitable.

Managers use accounting information for a variety of reasons. First, the financial statements tell them how much there is to allot for labor and for materials. This same bit of information also allows them to forecast how much of a product can be produced. If the company is strictly a sales company, then the financial statements let them see how much inventory can be purchased and how much was sold in the last period. All of this information helps management and owners forecast future supply and demand.

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