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Introduction

Accounting is the process of identifying, measuring, and communicating economic


information to permit informed judgments and decisions by users of the information. It is
the language of the business because people in the business world, owners, managers,
bankers, stockholders, and investors all use accounting terms and concept to describe the
resources and the activities of every business, large and small.

Financial statement is a formal record of financial activities of business, person or other


entity. All financial information’s presented in a structured manner and in a form easy to
understand. Financial reports on a company’s assets, liabilities and ownership at a given
point of time. Also constant statement of comprehensive income reports on a company
expenses and profit over period of time. Profit and loss account provide information on
the operation of the enterprises. These includes sale and various expenses incurred during
the processing state.
Statement of changes in equity; it explains the changes of the company’s equity
throughout the reporting period.
Statement of cash flows; reports on a company’s cash flow activities, particularly its
operating, investing, financing activities.
In large companies these statements are complex and may include an extensive set of
note to the financial statements and management decisions and analysis. Each statement
is explained in the balance sheet, income statement, and cash flow statement in further
detail. Notes to the financial statements are considered an integral part of the financial
statement.

As a language accounting provides information’s to different individuals since it


communicate through its several report concern the company’s financial position and
other economic and business matters relates to the company.

The users of financial informations can be grouped into two parts;

I. Internal users
These include all internal individuals in the company such as;
Managers
As for managers it provide a more comprehensive view of the financial position of an
organization, financial analysis is performed with the information supplied in the
financial statements. The financial statement is used to formulate contractual terms
between company and other organizations.

Owners
They want to be able to see whether or not the business is profitable. Apart from that they
also want to know what financial resources of business are.
Employees
The employees are interested in the financial statement on account of various profit
sharing and bonus schemes. Their interest may further increase in case they purchase
share of the companies in which they are employed.

External users
These include those groups of individuals outside the organization, who are interested in
a company’s financial situation / position, including:

Tax inspectors/government
They need to be able to calculate the taxes payables. Take an example of TRA (Tanzania
Revenue Authority), this is a government agency in collecting tax from different
businesses; which means that to be specific in collecting a certain amount from any
business source TRA usually uses financial statements that assist it in knowing the
financial details about a business concern different exchanges that takes place. Hence
through sources like income statement TRA can know profit and losses that a company
went throughout the business period.

Bank/ lenders
If the owner wants to borrow money for use in the business, then the bank will need such
information. Technically for a company to get a loan from a bank it is required to present
its financial statement that will show how it operates and other corresponding things that
will assist a bank in analyzing the financial position of a company.

Potential investors
These are group of people who are interested in knowing the financial position of the
company for the purpose of investing in the company or not. Mostly they are interested
in analyzing the company’s financial statements such as balance sheet, cash flow and
other which normally show the map of exchange and other financial activities takes place
in the company.

There are also other users of financial statements as follows:


Competitors; normally they look on the company position for the purpose of
benchmarking its operations.
Suppliers; potential suppliers who are interested in knowing the financial position of the
company for the purpose of knowing
Citizen; An ordinary citizen may be interested in the accounting records of the institution
with which he comes in contract in his daily life.
Prospective partner; To be specific and go into a contract of partnership with a
company normally individuals are interested in analyzing the financial position of the
company through different statements which shows the map of and structure of the
company’s activities on what it is doing.
Community representatives; these includes different groups of people in the
organization who are interested in the company’s operations; they include NGO’s, media,
environmentalists.
Conclusion
Financial statements are the basic tool that helps in knowing the direction of the company
in different perspectives. It has to be noted that these are crucial informations that have to
be prepared in a special manner and by professionals, which in turn the end product will
project the real company situation and its financial structure as a whole.