E1-2 The following are users of financial statements. Instructions (a) Identify
ID: 2388863 • Letter: E
Question
E1-2
The following are users of financial statements.
Instructions
(a) Identify the users as being either external users or internal users.
Customers
Internal Revenue Service
Labor Unions
Marketing Manager
Production Supervisor
Securities and Exchange Commission
Store Manager
Suppliers
Vice-president of Finance
(b) The following questions could be asked by an internal user or an external user.
Identify each of the questions as being more likely asked by an internal user or an external user.
Can we afford to give our employees a pay raise?
Did the company earn a satisfactory income?
Do we need to borrow in the near future?
How does the company's profitability compare to other companies?
What does it cost us to manufacture each unit produced?
Which product should we emphasize?
Will the company be able to pay its short-term debts?
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Explanation / Answer
Answer to question a : External users are the users that does not belong , work for the company but does have an stake in the company for example government, suppliers, shareholders and etc. Internal users are those users that work for the company. They include the managers, employees. Customers : external users Internal Revenue Service : Labor Unions : external users Marketing Manager : internal users Production Supervisor : internal users Securities and Exchange Commission : external users Store Manager : internal users Suppliers : external users Vice-president of Finance : internal users // If the Vice- preseident of Finance is the one that is included in the board of directors committee then it will be included as an external user. Can we afford to give our employees a pay raise? internal user - as employees pay is decided by managers and the supervisors of the company. Did the company earn a satisfactory income? external user - The question is mostly asked by the shareholders. Do we need to borrow in the near future? External user - Board of directors as that is a part of strategical planning. Borrowing is taken for future projects and board of directors are part of external users. How does the company's profitability compare to other companies? external user - The question is mostly asked by shareholders so to decide how well is the company doing comparative to other companies. What does it cost us to manufacture each unit produced? Internal Users- That is a part of tactical planning which the managers and supervisors decide and put such an question. Which product should we emphasize? Internal user - That is a job that the managers should decide so that is question is asked and solved mostly by managers. Will the company be able to pay its short-term debts? External users question and calculate this question to figure out whether providing loans to the company is safe or risky. That is mostly followed by banks and other loan providing services.
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