Accurate Financial Statements
Accounting is a system that helps businesses track how well they are doing and where they may be going by processing certain information. That information is complied into financial statements that not only help the particular business see where they stand but they are also used to show outsiders like lenders and investors how a company is doing to give them some insight as to whether they should take part in investing in their company. This paper will discuss why accurate financial statements are important for outside business interests by covering some of the ways that those statements are used by outsiders.
What are financial statements and how are they used? Financial statements are “documents that report on a business in monetary amounts, providing information to help people make informed business decisions” (Horngren, Harrison, & Oliver, 2012, pp. 36). These documents tell a business if they are making a profit, where their money is coming from or going, and if they should expand among other things. The types of people that use financial statements are individuals, businesses, investors, creditors, and taxing authorities. Since we are just talking about how financial statements affect business interests we will not go into detail on how individuals may use financial statements. We will also omit taxing authorities for this paper. Business decision makers will use financial statements to help them see if they can afford to go further in their business, can they afford to purchase new equipment or inventory, can they afford to expand their business to new markets or locations, can they afford to remodel their current building and so on (Horngren, et al., 2012, pp.3).
Some businesses look for funding from investors, people who will invest some money into a business with the hopes of making a financial gain from it; these investors will want to see if it makes sense to invest in a certain company by looking at...