Answer to Question #145511 in Finance for suyash upadhyay

Question

Karagiri is a Pune based startup that works with 800 families across India. The startup is in the business of handloom saris. They converted the pandemic period in to an opportunity. The business owners realized that accounting is essential to permit informed judgements and decisions by the user of accounts. In the light of given definition of accounting, discuss about users and uses of accounting information

Answer 1

Accounting or accountancy is the systematic process of identifying, measuring, recording, analyzing, interpreting, and communicating financial transactions. Transactions that can be measured in monetary terms are the ones that are recorded. The primary purpose of recording is to form meaningful interpretations and communicate them to the various users of accounting information derived, which can be financial position, profit/ loss, capital structure, etc.

The users can be divided into 2 categories, namely external and internal users.

External users:

Creditors - get to know if their funds invested are safe

Government - get to know about the taxes receivables and if the business is legal or not

regulatory agencies - get to know if the firms are complying with the industry norms

Internal users:

Owners - get to know what they are making by the end of the year

Employees- get to know if the firm can pay them salaries and whether their job is safe or not

Managers - get to know what additional steps need to be taken to manage the company better

Uses of accounting information

Create company budgets - accounting information helps the company to create budgets to manage future profitability better. In the given examples, it can determine the optimal cost and provide incentives to the 800 families to produce more.

Making business decisions - can help the owners to determine the costs and whether they need to adjust the selling price to improve the sales.

Making investment decisions - it can provide companies with data that can help the managers/ owners to take decisions. In such a case the managers may take the decision to invest in machines and provide them to families to increase their efficiency and output and get better returns.