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Users of Accounting Information

This document discusses the users of accounting information. It identifies two primary types of users: internal users, who are part of the business itself like management and employees, and external users, who are outside parties like investors, lenders, and regulatory authorities. Several examples of internal and external users are provided along with the types of information each uses for decision making, compliance, investment decisions, and evaluating the financial health and creditworthiness of businesses.

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Buhari Abdullahi
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249 views

Users of Accounting Information

This document discusses the users of accounting information. It identifies two primary types of users: internal users, who are part of the business itself like management and employees, and external users, who are outside parties like investors, lenders, and regulatory authorities. Several examples of internal and external users are provided along with the types of information each uses for decision making, compliance, investment decisions, and evaluating the financial health and creditworthiness of businesses.

Uploaded by

Buhari Abdullahi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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NAME: ABUBAKAR IBRAHIM

MATRIC NO: HPA/EP/22/0920

DEPT: PUBLIC ADMINISTRATION

COURSE: PUBLIC FINANCIAL MANAGEMENT

USERS OF ACCOUNTING INFORMATION

Accounting is the language of business; it brings life to the otherwise lifeless


business activities. It acts as a bridge between users of the information and the
day to day transactions that occur inside a business. Users of accounting
information may be inside or outside a business.

Qualitative characteristics of accounting information: such as identifying,


measuring, recording and classifying financial transactions help businesses with
decision making, analysis, target setting, budgeting, pricing, forecasts, etc.

There are primarily two types of users of accounting information;

Internal users (primary users) – If a user of the information is part of the


business itself then he/she is considered as one of the internal or primary users of
accounting information. 

For example, management, owners, employees, etc. The branch of accounting


which deals with internal users is called management accounting.

External users (secondary users) – If a user of the information is an external


party and is not related to the business then he/she is considered as one of the
external or secondary users of accounting information.
For example, potential investors, lenders, vendors, customers, legal and tax
authorities, etc.

INTERNAL USERS OF ACCOUNTING INFORMATION – (Primary)

Following are the primary users of accounting information:

1. Management – Organization’s internal management includes all junior and


senior business managers.

They use it for

1. Budgeting, forecasting, analysis & take important financial decisions.

2. Investment decisions, identification of warning and opportunity signals.

3. Taking informed & evaluated decisions.

4. Compliance with all statutory, regulatory, and any other external body.

2. Owners/Partners – Owners are the legal stakeholders of the business and the


ultimate signing authority.

They use it for

1. Tracking their investment and monitoring their return on investment.

2. Observing their capital invested and evaluating its upward or downward move.

3. Keeping an eye on the overall well-being of the business.


3. Employees – Full-time & part-time workers. They are essentially on the
company’s payroll.

They use it for

1. Checking the overall financial health of the company as it affects their remuneration


and job security.

2. Decision making in case of shares based payment such as ESOPs offered by the
employers.

3. Examining if the employer is depositing all required funds to the appropriate


authorities such as the provident fund, 401(k), etc. 

EXTERNAL USERS OF ACCOUNTING INFORMATION (Secondary)

Following are the secondary users of accounting information:

1. Investors – They may be current investors, minority stakeholder, potential


future investors, etc.

They use it for

1. Checking how the management is utilizing the equity invested in the business.

2. Decisions related to an increase in investment or to divest from the business.


3. Analyzing their present investment in the business or the overall financial health in case of
a potential investor.

2. Lenders – Banks and Non-banking financial companies which provide loans in


the form of cash or credit are termed as lenders.

They use it for

1. Evaluation of short-term and long-term financial stability of a business.

2. An insight into the liquidity, profitability, etc. with the help of ratio analysis 

3. Assessment of the creditworthiness with the help of financial ratios and scrutiny of


the three main financial statements in accounting.

3. Regulatory and Tax Authorities – Regulatory bodies such as the stock


exchange & authorities include the govt. along with various statutory and tax
departments.

They use it for

1. To keep a check and ensure that the firm is following all required accounting principles,
standards, rules & regulations.

2. The ultimate intent is to protect business integrity & safeguard investors. 


3. Tax department as one of the users of accounting information assures accurate tax
calculation by the companies.

4. Customers – Are buyers of goods or services and may exist at any stage of a
business cycle. They may be producers, manufacturers, retailers, etc.

They use it for

1. Checking the continuous inflow of stock and the pace of overall production.

2. Assessing the financial position of its suppliers which is essential to maintain a stable
source of supply.

5. Suppliers – Are the sellers of goods and services.

They use it for

1. Inspecting the credibility of their customers by evaluating their repayment ability.

2. Setting up a credit limit & payment terms with their customers.

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