Accounting

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Why would users rely on financial statements? What is an example of a financial measure that an external user might use? What is an example of a financial measure that an internal user might use?

Users rely on financial statements to gauge the strength and outlook of companies. Others understand that. One would want that company to make money for them when they invest. If companies didn't make money for you there would be no reason to buy stocks and no reason the price of a stock would ever go up. If one does not look at the financial statements, they would not know if they were choosing a good company to invest in. Others understand that financial statements often cause more dramatic movement in the stock price when the news is released. They intend to profit from the news. External users include stockholders, bankers, creditors, potential investors, and tax and regulatory agencies that have an interest or stake in the organization. Each of these external users will use financial reports to satisfy their need for information to determine profitability, credit worthiness, or compliance. Financial reports provide useful information to company’s internal users that allows for evaluation and aids management in making decisions that affect the future of the company. This type of information is helpful to users and management at every level of an operation and if used correctly, can increase the organization’s success and profitability.

 What are the components of a budget? Are the components the same for every organization? Why or why not? Should every organization forecast its operating budget? Why or why not?

A budget is basically a forecast of the money that an organization is planning on spending in an upcoming period. You would come up with a budget number for every item on your organizations financial statements including the Income Statement and Balance Sheet. Each component on your budget would depend on the financial statements, so while...
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