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buy this full document at CHAPTER 1 QUESTIONS 1. The users of accounting information can be divided into two groups: internal users, who make decisions directly affecting the internal operations of an enterprise, and external users, who use the information to make decisions concerning their relationships with the enterprise. Members of the latter group include creditors, investors, government, and the general public. Both types of users benefit by receiving information needed to make economic decisions. Generally, accounting information is used to help make decisions that affect the allocation of scarce resources, including labor, materials, and capital. 2. Because almost all resources used in the world are limited in quantity, these resources must be allocated to specific activities. Accounting information can be used to determine the profitability of activities relative to the using up of resources. By structuring the accounting information in different ways, measurements can be reported that will suggest alternative ways to allocate the resources to better meet the goals and objectives of both society as a whole and specific economic units in particular. 3. Accounting information is of most value in making decisions that will affect the future. There are many examples of how accounting information can be used to assist in this process. Three examples follow: (a) Creditors must evaluate a company’s ability to repay money borrowed in the present at specific dates in the future. Past accounting information can be used to forecast whether the future cash flows will be sufficient to meet the repayment schedule. (b) Investors enter into investment arrangements that are expected to produce revenue streams that will meet their needs. Projections of expected cash flows of a company can indicate the likelihood of a company’s paying future dividends equal.
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