Page 434 - Introduction to Business

408 PART 4 Accounting

Does a Company Benefit from Setting Up
a Website?

roviding financial information to government regulators is a requirement
for publicly traded corporations in the United States and many other
Pcountries. This helps ensure reliable financial reporting and is helpful to
investors and other users of the financial statements. Many companies have
set up websites to promote their business activities, and many companies
provide financial statement information on the Web.
Research by Dr. Shirley Hunter at the University of Houston at Clear Lake
investigated the impact of setting up a website on business firms located in
emerging market countries such as India, Indonesia, and South Africa. She
found that business firms in those countries do receive a positive benefit from
setting up a corporate website. The website can be useful for providing general
information about the company, as well as specific financial statement
information. 1

Introduction

Accounting information is used by people, both within and outside the firm, to
evaluate the success or failure of the firm. The managers of a business firm decide
how the firm will operate. Decisions such as the following must be made:
• What goods or services will be sold by the firm
• What price the firm will charge for its goods or services
• In what geographic locations the firm will be situated
• From what suppliers (vendors) the firm will acquire its inventory
• What employees to hire
• How the firm will market its products
• What type of assets the firm should acquire for use in operations
• How the firm will finance its operations
This chapter examines how accounting information is organized and reported
to help make these decisions. As the opening vignette illustrates, financial reports
are also used to communicate information to interested parties outside the firm.

The Purpose of Financial Reporting

LEARNING OBJECTIVE 1
Explain the role of financial reporting.

Accounting will determine whether the revenues of a firm exceed its expenses, thus
resulting in a profit. Alternatively, accounting will determine whether expenses
exceed revenues, thus resulting in a loss. Naturally, the managers want the firm to
make a profit. The primary goal of the firm is to increase the wealth of the firm’s
owners, that is, investors. Investors buy stock and thereby become part owners of a
corporation. In general, stock increases in value when a corporation is profitable.
Thus, a firm with a record of profitability that is consistently reporting a solid net
income on its financial statements is preferred by investors. As a practical matter,
the current price of a company’s stock is dependent on investor expectations of the
future earnings of the company. Usually the best predictor of future earnings is past
earnings.

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