Briefly discuss providing a well-reasoned answer as to what you consider the

Question

Question 1 (20 Marks) 1.1 Briefly discuss providing a well-reasoned answer as to what you consider the difference between recording and reporting in the practice of accounting. [ 5 marks] 2.1 Explain why the following external users of financial statements use them for decision making: [15 marks] • Investors • Lenders • Suppliers • Government • Management Question 2 (30 Marks

Answer 1

1.1 Difference between Recording and Reporting in Accounting (5 Marks):

Recording in accounting involves the systematic and detailed documentation of financial transactions as they occur. This process typically includes journalizing, posting to ledgers, and maintaining source documents. Recording ensures that all financial activities are accurately and comprehensively captured in an organization's accounting system.

Reporting in accounting, on the other hand, refers to the preparation and presentation of summarized financial information to various stakeholders, both internal and external. It entails organizing the recorded data into financial statements such as the balance sheet, income statement, and cash flow statement. Reporting focuses on conveying the financial performance and position of a company in a format that is understandable and useful for decision-making.

In summary, recording is the foundational step that captures financial data, while reporting involves the synthesis and communication of that data to inform stakeholders about the financial health and performance of the entity.

2.1 External Users of Financial Statements (Investors, Lenders, Suppliers, Government, Management) (15 Marks):

Investors: Investors, such as shareholders and potential shareholders, use financial statements to assess the profitability, stability, and growth potential of a company. They analyze key metrics like earnings per share (EPS) and return on investment (ROI) to make informed decisions about buying, holding, or selling shares.

Lenders: Lenders, including banks and bondholders, rely on financial statements to evaluate a company's creditworthiness and ability to repay debt. They examine liquidity ratios (e.g., current ratio) and debt-to-equity ratios to assess the risk associated with lending money to the organization.

Suppliers: Suppliers use financial statements to gauge the financial health of their customers. They assess a company's ability to pay its bills on time by reviewing its liquidity and solvency ratios. A financially stable customer is more likely to maintain a consistent business relationship.

Government: Government agencies, such as tax authorities and regulators, use financial statements to ensure compliance with tax laws, accounting standards, and regulations. They also rely on these statements to assess the economic health of businesses and make policy decisions.

Management: Internal management uses financial statements for strategic planning, performance evaluation, and decision-making within the organization. They track key performance indicators (KPIs) like profit margins and revenue growth to assess the effectiveness of their strategies and operations.



In conclusion, financial statements serve as crucial tools for external users like investors, lenders, suppliers, government agencies, and internal management to make informed decisions, assess risks, and monitor the financial well-being of a company. Each group focuses on specific aspects of the financial information to support their unique objectives.

Answer 2

Hello Tom M.,

In accounting, especially financial accounting, we record accounting transactions to create a permanent record, and we use those records to report financial information to users of financial information.

More specifically, accounting transactions or events, like sales and purchases, are analyzed and recorded in books of original entries, which we call a journal. Then, we use the journals to create financial statements. Firms use financial statements to report the firm's results to users such as inventors, lenders, suppliers, government agencies, and the firm (management) through its board of directors.

Please note that this list is not exhaustive: investors use financial statements to determine if a firm is the best investment to meet their objectives. Lenders use financial statements to decide whether or not they should originate or extend a firm's credit lines. Suppliers use financial statements to determine if they should extend credit to a firm and if selling to them will help grow shareholder value. Finally, the government uses financial statements to monitor firms for safety and soundness, to protect the public, and to collect taxes.

I hope that was helpful.