jasper accounting

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1. Discuss the users of financial information

Internal Users

Internal users of accounting information are managers who plan,

organize, and run a business and include marketing managers and

production supervisors (Weygandt, Kieso, and Kimmel, 2005, p. 5). Managers

must understand financial information to answer such questions as Is cash

sufficient to pay bills? and Which product line is more profitable?

Accountants provide internal reports to management for comparison and

forecasting needs; such examples include comparisons of operating

alternatives, projections of long-term financial sustainability, and forecasts

for annual cash needs.

External Users

Several types of external users of financial and accounting information

exist and include investors and taxing authorities. Investors (owners) use

accounting information to make decisions to buy, hold or sell stock (p. 6),

while suppliers view the financial health of the organization to ensure timely

repayment of credit extended to an organization. Other external users

include equity investors, creditors, employees, customers, governments and

their agencies and regulatory bodies, and the general public.

Equity investors are interested in the entitys ability to generate net

cash inflows because their decisions relate to the amounts, timing, and

uncertainties of those cash flows (FASB, p. 2). The entity investor is

interested in the types of dividends or other cash distributions provided to


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investors and how prices of shares or other ownership interests fluctuate

based on a companys ability to generate net cash inflows.

Creditors include banks and other lending institutions that provide

capital for a companys operations or to fund projects. Creditors are also

interested in the current and future cash flows of an organization and views

said entity as a source of cash in the form of interest, repayment of

borrowings, and increases in the prices of debt securities (p. 2). The firm

must satisfy such research with the ability to earn satisfactory income and

repay debts when said debts come due.

Employees and the organizations that support said employees are

interested in whether the company can pay for the services employees

provide to the company. Stability, profitability, and employer growth are all

key interests of employees and unions as these translate into the ability of

the company to continue to pay wages and provide compensatory benefits,

such as retirement and health benefits.

Customers depend on a company to provide goods and services to

them and are interested in the long-term profitability of the organization.

Corporate longevity is not only the concern of corporate management and

owners but also customers who depend on a product or service from said

company. Dependence of products or services could cause hardship to

consumers, especially business consumers, in providing their products or

services to their core market. Customers are interested in whether a


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company will continue to honor product warranties and support its product

lines (Weygandt, Kieso, and Kimmel, 2005, p. 7).

Governments and their agencies and regulatory bodies are interested

in the activities of an entity because they are in various ways responsible for

seeing that economic resources are allocated efficiently (FASB, p. 3). The

Securities and Exchange Commission and the Federal Trade Commission are

examples of such regulatory agencies, as they need to know whether the

company is operating within the rules dictated by these regulatory agencies.

The IRS is a governmental agency that applies tax rules and guidelines

companies must comply with in preparing financial statements and

preparing tax returns.

The final set of users requiring company financial information is the

general public. The general public is interested on the contributions of

companies on the local economy in the generation of employment

opportunities, payment of taxes, and the provision of charitable

contributions. Members of the public are interested in trend analysis of

financial information and recent news to determine if the company can

continue to contribute to the local economy.

Importance of Financial Information

Companies provide financial information to users in the form of various

financial statements, press releases, and other pertinent data. Such data is

used by various users to determine creditworthiness, continued operations,

and adherence to regulatory standards. Companies certainly benefit from


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the users of financial information and the accountant must ensure timely and

transparent information to these users. Without such financial information,

users of financial information could not provide companies with needed

financial capital and could not depend on corporate forecasts and outlooks.

2. What is a business organization? Explain the forms of business

organization

Business Organization

Structure of a particular business in terms of how it functions. Its purpose

is central to its structure.

COMMON FORMS OF BUSINESSORGANIZATION

SOLE PROPRIETORSHIPS

A sole proprietorship is a business owned and managed by one individual. Asole proprietorship is not a legal entity. It refers to an individual who ownsthe business and is personally responsible for its debts. Owners may freelycommingle business and personal assets. Owners cannot raise capital byselling and interest in the business. The owner reports all income andexpenses on the owners personal tax return. The business terminates on theowners death or withdrawal. However, an owner can sell the business, butcan no longer remain the proprietor.

GENERAL PARTNERSHIPS

A general partnership is a business organization formed when 2 or moreindividuals or entities form a business for profit. All partners share in themanagement and in the profits and decide on matters of ordinary businessoperations by majority of the partners or by percentage ownership of eachpartner. Each partner is liable for all business debts and bears responsibilityfor the actions of the other partners. Each partner reports partnershipincome on their individual tax return. A partnership dissolves on the death orwithdrawal of a partner unless the partnership agreement provides


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otherwise. Partnerships are relatively easy and inexpensive to form andrequire few ongoing formalities.

LIMITED LIABILITY COMPANYA limited liability company is a new and flexible business organization of one

or more owners that offers the advantages of liability protection with thesimplicity of a partnership, i.e. partners are not liable for business debts.Each partner reports business income on their individual tax return. LLCsmay dissolve on the death or withdrawal of an owner depending on statelaw. An LLC is not appropriate for businesses seeking to become public orraise capital. LLCs require few ongoing formalities but usually requireperiodic filings with the state and also require annual fees. LLCs are moreexpensive to form than partnerships.

CORPORATIONSA corporation is a legal entity that has most of the rights and duties of a

natural person but with perpetual life and limited liability. Shareholders of acorporation appoint a board of directors and the board of directors appointsthe officers for the corporation, who have the authority to manage the day-to-day operations of the corporation. Share holders are generally liable forthe amount of their investment in corporate stock. A corporation pays itsown taxes and shareholders pay tax on their dividends. However, in asubchapter S corporation, shareholders report their share of corporate profitor loss in their individual tax return. The corporation is its own legal entityand can survive the death of owners, partners and shareholders. Acorporation is the best entity for eventual public companies. Corporationscan raise capital through the sale of securities and can transfer ownership

through the transfer of securities. Corporations require annual meetings andrequire owners and directors to observe certain formalities. Corporations aremore expensive to form than partnerships and sole proprietorships.Corporations require periodic filings with the state and also require annualfees.

There are many tyoes of Business Activities, which include:

Local businesses

National businesses

International businesses

Public businesses Private businesses

Not for profit businesses

Branches ofaccounting:

In order to meet the ever increasing demands made on accounting by different interested partiesthe various branches of accounting have come into existence.

Financial Accounting:
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The main purpose of financial accounting is to ascertain the true result of the business operations

during a particular period of time and to state the financial position of the business on a

particular point of time. Financial accountingproduces general purpose reports for use by thegreat variety of people who are interested in the organization but who are not actively engaged in

its day-to-day operation. Financial accounting is the oldest and the other branches have

developed from it. The objects of financial accounting can only be achieved by recordingbusiness transactions in a systematic manner according to a set of principals.

Cost Accounting:

The main object of cost accounting is to determine the cost of goods manufactured or producedby the business. It also helps the management of the business in controlling the costs by

indicating avoidable losses and wastes.

Managerial Accounting:

The object of this accounting is to communicate the relevant information periodically to themanagement of the business to enable it to take suitable decisions.
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