Interested parties

Revise Interested parties for Accounting 0452 (O Level) — revision notes, 32 practice questions and instant AI marking.

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Cambridge IGCSE Accounting 0452

Interested Parties

The big idea: Different people read the same financial statements for different reasons. The owner wants to know if it is worth carrying on; a supplier only wants to know if it will be paid. Match the party to the decision, then to the figures that answer it.

Summary — What This Chapter Covers

Owners, managers, trade payables, banks, investors, club members and others (government, tax authorities, employees, customers) all use accounting information.
Each party has a different decision to make, so each looks at different statements and ratios.
In an answer: name the party, state its decision, name the figure or ratio it would use, and say why.

1. Who Uses Accounting Information, and Why

Syllabus 6.4 · Paper 1 & 2

Party → decision → figures

Interested party	Decision it must make	What it looks at
Owners	Is the business worth continuing? How much can I draw? Should I expand?	Profit for the year, profit margin, ROCE (compared with interest elsewhere), capital
Managers	Which costs to control, which products to push, how much inventory to hold	Gross margin, expenses, inventory turnover, receivables days, budgets against actual
Trade payables (suppliers)	Should we sell on credit? How much and for how long?	Current and liquid ratios, trade payables turnover (how fast the business pays)
Banks and lenders	Should we lend or allow an overdraft? Will interest and repayments be met?	Profit (to pay interest), liquidity ratios, non-current assets as security, existing loans
Investors (shareholders, potential shareholders)	Should we buy, keep or sell shares?	ROCE, profit margin, retained earnings, dividends, trends over several years
Club members	Is the club well run? Will subscriptions have to rise?	Surplus or deficit, accumulated fund, cost of activities such as refreshments
Government and tax authorities	How much tax is due? Statistics on the economy	Profit for the year, revenue
Employees	Is my job secure? Can the business afford a pay rise?	Profit and its trend, liquidity
Customers	Will the business still be here to supply goods and honour guarantees?	Profit trend, liquidity

2. Lenders and Suppliers

Syllabus 6.4 · Paper 1 & 2

Will the money come back?

A supplier and a bank are both outsiders who are owed money. They care less about profit margins than about whether the business can pay on time.

Worked Example

A supplier offers 30 days’ credit. A customer business has trade payables of $9,000 and made credit purchases of $54,750 last year. Its current assets are $26,000 (including inventory $15,000) and current liabilities $20,000. Advise the supplier.

Practice Question 1

A sole trader asks the bank for a five-year loan to buy a delivery van. State three things the bank would look for in her financial statements and explain why.

3. Owners, Investors and Club Members

Syllabus 6.4 · Paper 1 & 2

Is the investment worth it?

Memorise

Insiders

Creditors

Investors

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Interested parties