Importance of Accounting Statements for External Users

This article discusses the importance of accounting statements for external users and how it helps in decision making. It explores the needs of customers, banks, shareholders, and employees for accounting information. The case study of Tesco is used to illustrate these concepts.

Accounting
For
Business

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Needs for accounting statements for the external users:..............................................................3
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
Accounting for business are the process for managing accounting information for the
business which gives profitability for the company. Business accounting are helps businesses for
managing information which gives profitability for the company. Business accounting are the
method which helps businesses for maintaining its information which are related to its
transactions (Hsieh, Ma and Novoselov, 2019). Business accounting includes transactions which
are for daily basis which includes financial statements. Business accounting includes financial
statements which includes cash flow statements, balance sheet, income statements etc. The
company which is includes for this report is Tesco. It is the British multinational company which
deals for retail sector. It was founded in 1919, headquarter situated for UK. This report includes
topics which are needs for financial statements which helps for the external stakeholders.
MAIN BODY
Needs for accounting statements for the external users:
Accounting is about recording business transactions which helps managers for decision
making. It helps business for the maintaining its activities which gives higher profitability for the
company. It is the process for business for recording its transactions which helps for making
better decisions. The Businesses which are makes accounting reports it is useful for their external
parties. The businesses which provides accounting information for their stakeholders it will give
benefits for them for investment decisions. In context to Tesco, the company makes business
transactions which helps external parties for investment related decisions. The external parties
for the business are its customers, banks, shareholders, suppliers, employees etc. Accounting
information helps these parties for the decision making for the business, it helps them for better
decision making.
Customers: Customers are the people who are purchases goods for the company. They
are the necessary element for the business which helps it for achieving higher profitability. It is
the element which helps businesses for runs its activities for the achieving higher profitability
(Warren, Jonick and Schneider, 2020). In context to Tesco, it is the retail base company for this
customers are important element which helps it for running its activities which helps it for higher
profitability.

Importance of Financial Statement for Banks: Financial Statements helps in
determining the ability of bank to meet obligations, long term and short term solvency. Bank can
also find its capacity of earning and credit worthiness. They can fixed up to what extent they can
provide loan by analysing financial statements. Bank pays importance to these factors in
financial statements:
 Assets: Assets plays important role for banks in decisions regarding lending of loans.
They represents resources as, short terms solvency will be determine by appraising
debtors exiting by loan officers.
 Cash Flow: By examining liquidity movements, bankers make sure inflow of cash that
is sufficient to settle bank liabilities. With the help of investing, operating and financing
activities bank bankers insight in bank liquidity movements.
 Expenses: Loan officer examines P&L of companies to determine their existing level of
manufacturing cost and administrative charges. This helps in knowing how business can
steer operations by curbing excessive spending.
 Revenues: Bankers examine corporate borrowers statement of profit and loss to see
revenue generation of business. Loan officers pay importance revenue items because any
change (negative) could affect the ability to repay of debts.
 Liabilities: In the process of granting loan application banks pay attention to borrowers
liabilities. This helps in evaluating how much money the debtors have and who are
existing creditors.
Importance of Financial Statements for Companies (Tesco):
These statements provide snapshot regarding financial health of companies over a particular
period of time. With these statements shareholders of Tesco are informed about decisions
regarding their equity investments, specially at time to vote in matter of corporates. Tesco
generates full information regarding their operations, cash flow, performance and overall
conditions. Tesco needs to consider all these things in financial statements-

 Importance of cash flow statement: Cash flow statement indicates exchange of cash
between Tesco and outside world over a period of time. Investors knows that Tesco have
enough cash in order to meet its expenses.
 Financial Ratios: Ratios helps in breaking down enormous amount of financial data's of
Tesco to its investors. As they determine Tesco indebtedness, profitability, operational
efficiency and effectiveness of management.
 Reporting on Operating results: It provides information regarding all operations that
have created a change in Tesco financial conditions. Investors of Tesco determine its past
income performance.
 Statement of shareholders equity: This statement is important for Tesco equity
investors. It provide changes in many equity components that includes retained earning
during a specific period. Growth in Tesco shareholders inequity helps in retained earning,
in expansion of shareholder base.
Shareholders: Shareholders are the element which helps business for raising funds for the
business for the dividends. Company gives dividend for the shareholders for their money.
Company earns profits for the expanding business for raising money for the shareholders. In
context to Tesco, shareholders helps company for raising funds which gives money for the
business which helps company for expanding its business which helps for the higher profitability
. Shareholders who gives money for the company for running its activities which helps it for
achieving higher profitability. Accounting information helps them for making decisions for
investments for business (Atmeh and Maali, 2017).
Employees: Employees are the element which helps business for running its activities.
Accounting information helps employees for decision making for running business activities. In
context to Tesco, the company provides accounting information for its employees for running its
activities. Employees helps business for better performance which gives higher profitability for
the company. Employees wants accounting information for running activities for the business
(Livne and Markarian, 2018).

CONCLUSION
From the above report it has been concluded that accounting for business are the process
for recording business transactions which helps business for decision making. Business
accounting are the method which helps businesses for maintaining its information which are
related to its transactions. The company has various elements for external parties they are needs
for accounting information which helps them for better decision making for the business.

REFERENCES
Books and journals:
Atmeh, M. A. and Maali, B., 2017. An accounting perspective on the use of combined contracts
and donations in Islamic financial transactions. Journal of Islamic accounting and
business research.
Hsieh, C. C., Ma, Z. and Novoselov, K. E., 2019. Accounting conservatism, business strategy,
and ambiguity. Accounting, Organizations and Society. 74. pp.41-55.
Livne, G. and Markarian, G. eds., 2018. The Routledge Companion to Fair Value in Accounting.
Warren, C. S., Jonick, C. and Schneider, J., 2020. Financial accounting. Cengage Learning.