FP Obj 1.02 The Need for Finan Info

What is financial information?

• any record or data related to an individual's or business's financial activities.

• any information found on the internet that states a business's plans.

What is accounting?

• The process of gathering, recording, organizing, and reporting financial data

• The process of hiring, firing, and managing employees.

Why should financial information be understandable?

Financial information must be understandable, not just to the people who prepare it, but to everyone who needs to use it. Accountants and others in the field of finance may have in-depth knowledge of financial data, but their reports will be seen by managers, employees, investors, etc., who may not be as skilled in the finer points of financial interpretation. For this reason, useful financial information is presented in ways that are understandable, both in the language used and in the layout and format of the report.

• True

• False

Why should financial information be relevant?

• So it can be used by customers to purchase more items from the business.

• So it can be applied properly and within the given time needed.

What makes financial information reliable?

• It is error free and complete, as well as neutral.

• It is comprised of charts and written reports.

Why should financial information be comparable?

Users must be able to compare current financial information to past financial information. If they can’t, it’s impossible to see what financial changes have occurred in the business, either positive or negative.

A business’s financial information should also be comparable to data from similar businesses. Potential investors want to see how one company stacks up against another company in the same industry. Managers also want to know how their business is performing in relation to its competitors. Comparability is another reason businesses conform to widely accepted accounting standards—it provides across-the-board consistency that benefits everyone. Comparability and consistency go hand in hand; therefore, a business should choose a set of accounting standards to follow and change it only when absolutely necessary.

• true

• false

How should financial information be “treated”?

• There is only one way to treat financial data.

• It must use FIFO to be within the law.

Why is product mix important?

• Product mix only matters for low volume business.

• To balance out the low profit items with the high profit items.

Which governing bodies regulate the financial reports?

• Financial Accounting Standards Board (FASB)

• Securities Exchange Commission(SEC)

The amount of money your company has on hand on any given day does not strictly correlate with your daily sales and expenses. You may have sold inventory and not yet received payment, bought inventory that you have not yet paid for or borrowed money that you will have to pay back in the future. What is the process of managing the funds your business has available and allocating them to your advantage?

• Product Mix

• Cash Flow