Chapter 13, Problem 1Q

To determine

State the primary users of the financial statements.

Answer to Problem 1Q

State the users of the financial statements.

Picture (1)

Explanation of Solution

Internal users:

1. 1. Management: The management uses the financial statements to understand the profitability and fianacial position of the company period to period, so that it can make decisions on operational and financing activities of the comapny.
2. 2. Customers: customers will consider the financial statements to select the suppliers, who has financial ability to supply the goods or services as required by the customer.
3. 3. Employees: A company might provide financial statements to its employees to increase the level of employee participation in and understanding of the business.

External users:

1. 1. Investors: Investors will consider the financial statements to understand the performance of the company. It help the investors to take decesions on their future investments.
2. 2. Creditors: Creditors will consider the financial statements, to estimate the capacity of the company to repay the loans and interest charges.
3. 3. Government: The Government consider the financial statements to determine whether the company paid the appropriate amount of taxes or not.