Accounting For Decision Making

Question

Read the following article:

http://www.nzherald.co.nz/small-business-sme/news/article.cfm?c_id=85&objectid=11861384

Using the above resources, answer the following questions:

1. Thinking about users of information, who are likely to be internal and external users of financial information prepared by Ogo? Are these users likely to use information prepared by a financial or a management accountant?
2. Identify items of income, expenses, assets, liabilities and equity that Ogo is likely to have.
3. What financial statements will be prepared on an annual basis for Ogo, and what decisions can be made using each of those statements?

Answer

Introduction

This report contains various financial terms and analysis on the financial statement which should be prepared by the different companies. There are several statements such as Income statement, Trading account and balance sheet which are used by internal and external users of organization for their better decision making.

Internal And External Users Of Information

Each and every organization has to prepare financial statement as per the IFRS rules and regulations for establishment of harmonization in reporting frameworks with other countries laws. It is evaluated that Ogo business wants to install new tourism hub in its business functioning to increase its overall turnover.   However, it is considered that if company want to run their business then they have to comply with the corporation act, 2001 and other applicable rules and regulations. There are several internal and external users which evaluate company’s financial statement such as Trading account, Profit and loss account, balance sheet, cash flow statement and Shareholders details account. These statement reflects all the financial and non-financial details about the company.

Internal users- Ogo business has several internal users such as employees, key managerial persons, CEO and other management department. These users could use financial statement to evaluate all the financial and non-financial information of company for the better decision making (Demmer, Pronobis & Yohn, 2016).

External users- These are the persons who provide capital, purchase goods and services from the company such as Banks, financial institutions, shareholders and clients. These users could evaluate financial information to evaluate whether company is creating value on their investment or not.  (Guay, Samuels & Taylor, 2016).

Income, Expenses, Assets, Liabilities And Equity That Ogo Is Likely To Have

Income- Ogo company would earn income from its normal business functioning. However, other income would be made from exceptional items and interest earning options.

Expenses- This Company has several expenses such as payment to employees, purchasing raw material and installing new machineries and plants in the business of Ogo.

Equity- It is the amount of capital or share issued by company to the shareholders for raising finance for the company. It is observed that Ogo has low financial risk due to its structured optimum debt to equity ratio.

OGO company will also have cash flow statement and shareholders details statement which would be used by key managerial persons and other stakeholders to evaluate whether company is having optimum level of cash flow in its business functioning. It is evaluated that shareholders could evaluate these above given statements then it would help them to make effective business decisions.

Financial Statements Will Be Prepared On An Annual Basis For Ogo 

There are several financial statement which are prepared by company such as balance sheet, Profit and loss account, shareholders statement and cash flow statement. Key managerial persons could reduce the overall cost of capital of company by using cash flow statement and evaluating balance sheet. It is observed that Employees could also evaluate whether cost of productions could be reduced or not. On the other hand, shareholders of company could evaluate whether company’s creating value on their investment or not. Cash flow statement and balance sheet of company could be used by shareholders and debenture holders of Ogo Company that whether company is having financial risk in its business or not for the sustainable business. Clients of Ogo could also evaluate shareholders statement and profit and loss account to determine whether company is having strong sustainable brand Image (Del Giudice, Manganelli, & De Paola, 2016).

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• Balance sheet of the company could be used by key managerial person to determine whether company is creating value from its assets and investment,
• Cash flow statement could be used to reduce the overall cost of capital of company by reducing overall cost of capital.
• Profit and loss of company could be used by company to evaluate the expenses and income of company (Wahlen,  Baginski & Bradshaw, 2014).

Conclusion

This report has reflected the key understanding on the financial statement and how business owners could use these information for the better decision making. There are several key statements such as cash flow statement, balance sheet and profit and loss account which could also be understood by internal and external users for the effective decision making. Now in the end, it could be inferred that if business owners could make effective analysis on the information given in the financial statement of company then they could easily make effective sustainable decision.

References

Del Giudice, V., Manganelli, B., & De Paola, P. (2016, July). Depreciation methods for firm’s assets. In International Conference on Computational Science and Its Applications (pp. 214-227). Springer International Publishing.

Demmer, M., Pronobis, P., & Yohn, T. L. (2016). Financial Statement-Based Forecasts and Analyst Forecasts of Profitability: The Effect of Mandatory IFRS Adoption.

Guay, W., Samuels, D., & Taylor, D. (2016). Guiding through the fog: Financial statement complexity and voluntary disclosure. Journal of Accounting and Economics, 62(2), 234-269.

Wahlen, J., Baginski, S., & Bradshaw, M. (2014). Financial reporting, financial statement analysis and valuation. Nelson Education.