DOC ACC Main users of accounting information Catherine Lim

This group includes all directors, such as the CEO, COO, and VPs, who must make important decisions concerning the company’s finances. By their very definition, these are all internal users of accounting and other departments. The accounting cycle process provides invaluable financial information in the form of financial statements for a broad range of individuals to use as they see fit. However, although many business owners understand the usefulness of this financial information, only some know who uses the statements produced. Accountants often use computerized accounting systems to record and summarize the financial reports, which offer many benefits.

The primary benefit of a computerized accounting system is the efficiency by which transactions can be recorded and summarized, and financial reports prepared. In addition, computerized accounting systems store data, which allows organizations to easily extract historical financial information. The accounting data is useful for all three tiers of a company’s management, Management (Board of Directors), Middle Management (Senior Executives), and Lower Management (Supervisory Staff). Management plays essential information in user of accounting information.

Organization

The basic requirement is for sustainable success and growth of a business entity, mutual understanding, and a cordial relationship between the employer and the employee. A company’s management can have a wholesome industrial relationship through highly contended, committed, and motivated employees. Firstly, we are going to discuss the internal user of accounting system. But, the external user is also very important and plays an important role in accounting information systems. Even non-profit making organizations, including clubs, non-governmental organizations (NGOs), and welfare societies, require accounting information to manage their affairs properly.

Accounting information is designed to meet the needs of both internal users and external users. Stockholders are those who have some interest in the success of the company. Investors and creditors are a good example, but even the local community could represent stakeholders, all of whom are internal users. An example would be a large factory providing jobs to thousands within a local community, and if it were to fail, it would have a significant impact on the population.

Table of Contents

The branch dealing with internal users is called management accounting. 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. Accountants provide information that helps government departments conduct their watchdog functions over business units. For example, it is the responsibility of the income tax department to monitor and audit tax compliance. Accountants provide relevant financial information to help the department carry out its work efficiently and effectively.

• In these scenarios, the financial information provides value to the process of allocating scarce resources (money).
• These data are then compiled and presented to decision makers within the organization.
• For example, it is the responsibility of the income tax department to monitor and audit tax compliance.
• The accounting information provides information necessary for making changes to the existing laws at the right moment for the economy and society’s betterment.
• It regards production, selling, and other expenses, which affect the market price of the finished goods.

External users will generally use “Financial Accounting” information. Aside from the United States government’s regulations, international standardization agencies also have their own that companies need to keep in mind. This is especially important in such a global economy where many companies conduct business outside United States borders. Compute the dollar effect of this change on the month-end amounts for (a) total assets, (b) total liabilities, and (c) total equity. 25 The company billed a customer $5,000 for work completed; the balance is due in 30 days. Our mission is to empower readers with the most factual and reliable financial information possible to help them make informed decisions for their individual needs.

Internal Users of Financial Statements

The financial reports or information resulting from the accounting process that is transferred to the users in two forms-internal and external. Creditors want to know if a company can pay its bills in a timely manner, and so will want to the historical cost principle and business accounting peruse the financial statements to determine the firm’s liquidity. They have a particular interest in the current ratio of the organization. An outcome of this examination can be a change in the amount of credit extended to a business.

Business involves a large amount of uncertainty, and accountants cannot predict how the organization will perform in the future. However, by observing historical financial information, users of the information can detect patterns or trends that may be useful for estimating the company’s future financial performance. Collecting and analyzing a series of historical financial data is useful to both internal and external users. For example, internal users can use financial information as a predictive tool to assess whether the long-term financial performance of the organization aligns with its long-term strategic goals. As you’ve learned, managerial accounting information is different from financial accounting information in several respects.