Critical Thinking Chapter 16 in Understanding Canadian Business 2016

Chapter 16

1. a) Because most owners of the business do not have the ability to do accounting. They would hire people who are proficient to do this work. No, it is waste time to finish all the paperwork for owners. The company will loss efficiency, because owners has more work to do. Computer can help most accountants to calculator the data which it will save more time and increase the productive efficiency.

      b) What is the role that accounting and financial information play for a business?

      c) Balance sheet is a financial statement that summarizes a company's assets, liabilities and shareholders' equity at a specific point in time. Every successful businesses would have a clear balance sheet in order for investor or entrepreneur to evaluate the financial status for the firm. For example, In image 1. The total current assets is greater than current liabilities, which means the firm’s financial status is healthy. If Bank wants to lend money to this company, they should evaluate their balance sheet to consider they have the ability to pay back or not. [pic 1]

2. a) Yes, it is very advisable and important to evaluate at the company’s financial statements. Because we want to make sure that they are a worthy investment. I will look and check each three key business financial statements. Firstly, I will check the balance sheet. I can know the owners’ equity, liabilities, and assets and see if the assets is balanced. Secondly, I will check the income statement because the income statement summarizes revenues, cost of goods and expenses for a specific period of time. Therefore, I can know the firm’s revenues and overall profitability. At last, I will check the statement of cash flows because it provides a summary of money coming into and going out of the firm during a period. I can know money flowing and see that the company has a reasonable cash balance.

     b) What financial information would investors seek for before they invest their money?

  c) They would check the firm’s income statement before they invest. income statement is a financial statement that reports a company's financial performance over a specific accounting period. On the income statement, we can clearly see expenditure and revenues of the firm, the net income would be the profits made by the business. The larger number of profits make by the firm, it would attract more investors provide funds for the company.[pic 2]