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Portfolio Activity Unit 1

Name of the Student

Department

BUS 5110 Managerial Accounting

Name of professor

Due April 14, 2022

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Portfolio Activity Unit 1- Financial Statements

Introduction

Financial statements of a company refer to the set of standard documents that are used to

show the performance of a company or a business during a specified period. The main objective

of financial statements is to avail the information about the financial muscle and position of a

company, its performance level in terms of finance, and the cash flow of an entity. Later this

information becomes critical when it comes to decision making (Apostolides, 2016).

As described, these financial statements are used by a wide range of users other than the

known Analysts and investors. In their classification, they are termed as internal and external

users whereby managers and employees are under the internal classification while suppliers,

lenders, customers, and government make part of the external users. They are explained as

follows:

Tax Authorities

These bodies use the financial statements to determine whether a company has been

paying the correct amount of tax or it has been avoiding making the payments completely.

Auditors

The external Auditors are used to access and give an honest and independent opinion

regarding the accuracy of financial statements. This later helps the investors, lenders, and

suppliers to have better and more accurate data about the company before lending and

investments. Additionally, the information gathered can be used to fish out tax evaders and bring

them to the book.

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Lenders and suppliers

These two types use financial statements to determine the creditworthiness of the

company. This information helps them to find the company's ability to pay back loans or pay

money for the supplies provided. A company with a great credit history always gives the lenders

and suppliers confidence to do services together.

Customers

This category may be the least concerned about these statements. Some customers are

willing to know about the financial status of a company to check the continuous supply of goods

for a long time. This will help in their decisions whether to continue working with the company

or not (Berkau, 2020). Additionally, when a customer is considering which supplier to select for

a major contract, he or wants to review their financial statements first, to judge the financial

ability of a supplier to remain in business long enough to provide the goods or services as

directed in the contract.

General Public

This includes a wide variety of people. Journalists, activists, academics, and individuals

with an interest in economic development may be interested in financial statements.

Government

The government uses financial statements to determine whether the company is

disclosing the account information according to the government regulations. They may use this

information to classify companies and see if they follow the correct government regulations,

such as safety regulations.

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Employees.

A company might be obliged to provide its financial statements to employees, along with

a detailed explanation of what the documents contain. This can be used to increase the level of

employee involvement in and understanding of the business that the company is involved in. To

add, especially in startups, employees are willing to learn more about the financial statements

due to shares and share options schemes (Adler, 2013).

Managers

The financial statements for managers help to plan, monitor, and make decisions related

to business. Further, they need reliable financial information for preparing and monitoring

budgeting. The comparing and monitoring of the performance of the company are done by

managers using financial statements. The managers rely on these accounting data for investing,

financing, and pricing decisions relating to the company.

Conclusion

In conclusion, the above statements and information gathered in financial statements play

different roles based on users. These users are broadly classified into internal and external users.

Accurate financial statements will help to protect the company, investors, owners, lenders,

suppliers, etc. It will help the government to protect the company and its employees. The

financial statements are a vital component of any company. This affirmation will help me in my

management and decision-making when it comes to dealing with supplies, lending, and other

government-involved deals. This will help me create a good face and increase even the
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creditworthiness of the company. With this knowledge am sure I will take my company to

greater heights.

References

Adler, R. (2013). Management Accounting. Routledge.

Apostolides, N. (2016). Management Accounting for Beginners. Routledge.

Berkau, P. C. (2020). Management Accounting: International Syllabus. UVK Verlag.