Users of Accounting Information

In this free online accounting tutorial we will discuss:

  • Users of Accounting Information
  • Internal Users of Accounting Information
  • External Users of Accounting Information
  • Who use accounting information

Accounting is an information system which identifies records and communicates this information to the interest users in the form of financial statements. These financial statements are transferred to the users or decision makers for making informed accounting decision because an effective and well organized financial report encourage  the decision makers to make greater decisions. These financial reports are transferred to the users in two forms-Internal and External. Internal financial reports are used by an individual who runs, manages and operates the daily activities of inside area of an organization. Manager, supervisor, financial director are the most featured examples of internal users and their area of work is referred as managerial accounting.

Management accounting generally deals with the information which is needed for organizing, planning and directing the internal task of an organization. Management accounting provides detail information of internal financial report to the internal users to make decisions for their company. This information is not available to the outsiders. For example, management accounting of ABC Company focuses on the information regarding the producing cost of any item, the number of product they need to produce, the way to produce the product etc. After having all these detail information, the management accounting of ABC Company will make informed decision.

External financial reports are used by individuals and organizations who want financial accounting information. External users are not the part of management of the company but they are interested to have financial accounting information about the company. External users get this accounting information through balance sheet, income statement and cash flow statement. There are many external users but investors and creditors are most common of them:

  • Creditors: Creditors (Lenders) are generally focused on those information which are related to the borrower before making a large loan such as the Bank (creditors) will want information about the borrower regarding some criteria: the ability of the borrower to repay the loan, the amount of assets and liabilities of the borrower, evidence of income, tax policies and so on. The creditors will make the loan after having this detail information through financial accounting statement of the borrower.
  • Investors: Investors generally provide money to individual or organization to start a business. Before investing money investors generally want to know whether they should invest or not or if they would invest to start a business now then how much return they will get from their investment. The investors will decide based on the financial accounting information of that business.

Other Users:

  • Government Regulatory Agencies: Government regulatory agencies like Federal and State Government Agencies and Security and Exchange commission want financial accounting information which is related to the investors, business organizations or any individuals. These regulatory agencies want the information to know that whether the business organizations are following the business rules and regulation or not or whether the investors are able to invest or make decisions or not. Securities & Exchange Commission want accounting information to evaluate the financial accounting disclosures of companies who sell their share or borrow money.
  • Taxing Authority: Taxing authority wants financial accounting information related to the tax policies, tax laws, amount of payable tax etc. from the individual or organization. Taxing authority wants financial accounting information to know that the business organizations are following tax rules or not and their ability to pay income tax because income tax is based on the financial accounting reports.
  • Suppliers & Customers: Sometimes customers also want to know about company on issues like warranty, product development etc. Suppliers want to know about company’s future goals so that they can serve best materials in coming days.
  • Employers and Labor Unions: Employers use accounting information for their own benefit. Accounting information help the employee to ensure their future benefit from the company like pension, health provision, retirement benefit etc. Labor unions want accounting information to know their future salary

Competitors, press also use accounting information or want financial accounting data for fulfilling their own business interest.

Accounting information system prepares its financial information in both internal and external report. Management accounting deal with those information that are needed for the internal users of the company to operate the business and financial accounting focus on the information that are needed for fulfilling the interest of external users.