A. Exchanges and contracts between managers, owners, and creditors: Owners and creditors exchange money with Floorshine for the right to receive cash in the future from the company. Contracts exist among managers, owners, and creditors. Managers contract with owners and creditors for money to acquire resources that will generate profits for the company and to employ the resources effectively and efficiently. Managers expect to be rewarded for their effectiveness and efficiency, and owners and creditors expect a fair return on their investments. These contracting parties need information to assess how well managers have performed and to determine how much cash from the company’s operations should be distributed to each party. Managers, owners, and creditors decide whether the terms of contracts are being met. Owners hire independent auditors (CPAs) to examine the financial information provided by managers to owners and creditors to ensure its reliability.
B. Exchanges and contracts between suppliers and managers: Suppliers exchange goods and services with the company for the right to receive cash. Contracts between suppliers and managers require information to determine that the company receives the correct types and quantities of goods and services at the appropriate times. Also, information is needed to demonstrate that the company has made timely payments for these goods and services.
C. Exchanges and contracts between employees and managers: Employees exchange labor services with the company for wages and benefits. Contracts between employees and managers describe the payments, benefits, and rights employees have negotiated with managers. Information is needed to demonstrate that labor services have been provided and employees have been treated fairly. The demands of employees for future wages and benefits depend, in part, on the profitability of the company. Employees and managers need information about the performance of the company to negotiate future contracts.
D. Exchanges and contracts between customers and managers: Customers exchange cash for goods and services provided by the company. Customers, such as retail stores, may receive the goods and pay for them later, say within 30 or 60 days. Managers expect to receive the payments when they are due. Contracts between customers and managers call for the delivery of goods to customers and payment to the company. Customers decide whether to continue to purchase the company’s goods. The quality and costs of the goods and future prospects for obtaining the goods when needed are relevant pieces of information. Information about the payment history of customers helps managers decide whether to continue to extend credit to customers.
E. Exchanges and contracts between government agencies and managers: Government agencies monitor companies to determine if they are engaged in fair trade and labor practices. Managers provide information to demonstrate that the company is conforming to government regulations. Governments provide services to companies in the form of police and fire protection, utilities, sanitation, and streets and roads. Companies pay taxes and fees for these services. Information is required to verify that appropriate amounts of taxes and fees are being paid.