Question

Which group uses accounting information to evaluate the company’s ability to pay interest and repay loans?

• A. Customers
• B. Employees
• C. Lenders and financial institutions
• D. Management

Answer 1

Answer:

C. Lenders and financial institutions

USERS OF ACCOUNTING INFORMATION

1. INTERNAL USERS

A) INVESTORS - Information on the risk and return on investment

B) MANAGEMENT - They need timely information on cost of sales, profitability etc. for planning controlling ,decision making etc.

2. EXTERNAL USERS

A) EMPLOYEE GROUPS - Information on stability, profitability of the business

B) LENDERS AND FINANCIAL INSTITUTION - Information on credit worthiness of the company and its ability to repay loans and pay interest in time.

C) SUPPLIER AND CREDITORS - Information on whether amounts owed will be repaid when due and on the continued existence of the business.

D) CUSTOMERS - Information on the continued existence of the business and thus, the probability of a continued supply of products, parts and after sales service.

E) COMPETITORS - Information on relative strength and weakness of their competitors.

F) GOVERNMENT AND OTHER REGULATORS – Need information to ensure whether the business is paying various taxes correctly and they are complying with various Laws of the country.