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USERS OF FINANCIAL STATEMENTS INCLUDE A
company’s managers, stockholders, bondholders,
security analysts, suppliers, lending
institutions, employees, labor unions, regulatory
authorities, and the general public. They use the
financial reports to make decisions. For example,
potential investors use the financial reports
as an aid in deciding whether or not to buy the
stock. Suppliers use the financial reports to
decide whether or not to sell merchandise to a
company on credit. Labor unions use the financial
reports to help determine their demands
when they negotiate for employees. Management
could use the financial reports to
determine the company’s profitability.
Demand for financial reports exists
because users believe that the reports help
them in decision making. In addition to the
financial reports, users often consult competing
information sources, such as new wage
contracts and economy-oriented releases.
This book concentrates on using financial
accounting information properly. Users must
have a basic understanding of generally
accepted accounting principles and traditional
assumptions of the accounting model in order
to recognize the limits of financial reports.
The ideas that underlie financial reports
have developed over several hundred years.
This development continues today to meet
the needs of a changing society. A review of
the evolution of generally accepted accounting
principles and the traditional assumptions of
the accounting model should help the reader
understand the financial reports and thus
analyze them better. |
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