Question

A creditor would use an entitie 's financial report to determine whether or not credit may be granted to the firm . Explain it

Answer 1

Megha,
You must be already aware of the fact that the creditors are the parties to whom the business owes money on account of account of credit purchase of goods and services from them. These parties require accounting information so as to enquire about the credit worthiness and liquidity position of the business. Thus, they are in need of the accounting information available through financial reports so as to judge the financial viability of the business and take decision so as to grant more credit to the business or not ?