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Distinguish between relevant and irrelevant data

What information is important when assessing financial statements?

How can you distinguish between relevant and irrelevant data?

How would an investor use the information differently than a lender?

Solution Preview

Accounting is the means by which information about an enterprise is communicated and, thus, is sometimes called the language of business. Financial Statements is designed primarily to assist investors and creditors in deciding where to place their scarce investment resources. It is also used to help management to know the performance of organization.

Important information

Financial statements are useful tools for evaluating both profitability and liquidity. Financial statements must be correct, comparable and consistent. Accounting is the means by which information about an enterprise is communicated and, thus, is sometimes called the language of business. Many different users have need for accounting information in order to make important decisions. These users include investors, creditors, management, governmental agencies, labor unions, and others. Investors and other stakeholders in the firm need regular financial information to help them monitor the firm's progress.

Thus the financial reporting should provide information that ...

Solution Summary

This distinguishes between relevant and irrelevant data

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