“The internal users of a company’s financial statements are those who are directly involved in managing and operating a company (Financial and managerial accounting p.6).” These users may include managers, officers, internal auditors, consultants, budget directors and market researchers. Managerial accounting is used to make detailed decisions on how to improve a company’s outcome.
“The external users are not directly involved in running the company these users include shareholders, lenders, directors, customers, suppliers, lawyers, brokers or the press (Financial and managerial accounting p.5).” Financial accounting is aimed for the externals users of an organization that allows them to make better business decisions of a company.
Both internal and external users of an organization rely on internal controls to keep track and monitor a company’s activities. Internal controls are procedures that are used to protects a company of its assets, make sure a company is in compliance with GAAP, ensure that the company is running efficiently and effectively, and to give direction to employee’s in following company policy.
Horizontal analysis compares previous data with one or more statements regarding the same item. This can be displayed as an amount or percent of an increase or decrease.
Vertical analysis measures a company’s condition and performance of a financial statement to a base amount. This can show us how a company has changed across time.
Common-sized statements are all shown as percentages and no dollar amounts. This helps us to compare information about one company to another, or using it to compare with the industry average.
The importance of financial statements is to summarize all financial data of a business. Once all transaction have been recorded and summarized, reports are then generated for users. This information is also gathered to make sure that business’ are in compliance with generally accepted