The fundamental accounting concepts and the role of financial accounting in aiding the decision making processes of four different non-management stakeholder groups.

Introduction

Reliable, relevant financial statements present the best information about a company's economic history, current financial health, and prospect for the future (Johnson, 2004). The preparation and presentation of financial statements require the use of certain rules to ensure truth, fairness, and consistency.

Accounting employs a number of concepts. They underlie all traditional accounting in commercial organizations and are generally employed in non-commercial organizations as well (Bebbington et al, 2001). Although various concepts have been employed, few have found universal agreement. However, four are deemed to be important (Oxford, 2002). The four fundamental accounting concepts can be identified as going concern, accruals, consistency, and prudence concept.

As mentioned above, financial statements are a record used summarize and communicate financial information about a company and there are many groups of people who have an interest in these statements. In other words, financial statements are important a wide range of groups both internal and external to the organization.

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Historical financial statement

Understanding Financial Leverage

These different groups are known as stakeholders. They always have different purposes by looking at the company's financial statement.

This study is divided into two parts. Part one explains how the fundamental accounting concepts are used in preparing financial statements. In this part examples are also given to illustrate the application of the fundamental accounting concepts. Part two explains the four main users of financial statements and their interest. In this part it will also critically evaluate the role of financial accounting in aiding the decision making processes of the main users of accounts.

PART I

Financial statements:

Financial statements are necessary sources of information about a company. They are used to analyse a company's past, present and future performance. A financial statement consists of the profit and lost account, the balance sheet, and the cash flow statement. Each of these statements summarizes...