Accounting information is used by investors and creditors of a company to predict?

A. potential merger candidates for the company
B. appropriate remunerations for the company’s staff
C. future cash flows of the company
D. future tax payments of the company

Correct Answer:

Option C – future cash flows of the company

Explanation

The average lender or investor does not have ongoing inside access to the day-to-day operations of a company. Instead, it relies on financial accounting to provide accurate and readily comparable information. Financial accounting allows outside actors to observe the profitability and value of a business.

Creditors are interested in accounting information, because it enables them to determine the credit worthiness of the business.