Accounting can be described as a way for passing on of financial details of a business company to others including its managers and shareholders.
External and Internal Users of Accounting Information –
Who could use accounting information?
The accounting information provided by an entity can have external as well internal users. This kind of information helps management and owners of business to take better fiscal decisions. The information can be used by people within or outside the organization.
Here are some of the frequent internal users of accounting:
- Management: The management finds the information of help in studying the performance and standing of company, thus enabling them to take steps necessary for improving the performance of their company.
- Employees: Employees, among the internal users of accounting, are also beneficiaries as they can appraise the success of their company and how that could affect their job by way of prospective salary and security of job.
- Owners: Owners use the information for evaluating their return on investment and deciding the strategy for future.
Internal users of accounting are generally provided with accounting information by way of budgets, forecast, management accounts and fiscal statements.
Here are some of the external users of accounting information provided by the companies:
- Creditors: This is to make them aware of the credit worthiness of the company. Creditors decide their terms of business as per their assessment of company’s financial health.
- Tax Authorities: This is to enable the authorities to verify the validity of tax returns as filed by the company.
- Investors: The information provided by the company helps investors to evaluate the viability of investing their funds with the company. Investors are interested to ascertain that the funds invested in that particular company would be worthwhile and get them good return on their investment.
- Customers: Customers can assess financial status of their suppliers. They require this information to be sure that they will keep getting continuous supplies from the company.
- Regulatory Authorities: This is to ensure that the accounting information provided by the company conforms to the prescribed rules and regulations with the intention of safeguarding the interests of shareholders, who largely depend on this information for making their decisions.
External users of accounting information are generally given this information by way of financial statements, which cater to the requirements of diversified users, helping them to make superior fiscal decisions.
Accountancy includes the process of recording, classifying and summarization of business dealings and affairs in a fashion which is helpful to its users to evaluate companies’ financial performance. The process first identifies the transactions and affairs that could affect the fiscal health and performance of an entity. Having done that, the transactions and affairs are classified, recorded and abridged in such a manner as to help the external and internal users of accounting information in assessing types and effects of those transactions and affairs.
Over the last few decades, the profession of accountants has come to include many different kinds of accounting as per the requirements of its users.