LESSON 3: USERS OF ACCOUNTING INFORMATION

Learning Objectives

At the end of this lesson, the learners should be able to:

1. define external users and gives examples

2. define internal users and give examples
3. identify the type of decisions made by each group of users
4. describe the type of information needed by each group of users

Internal Users

Internal users of accounting information are those individuals inside a company who
plan, organize, and run the business. These users are directly involved in managing
and operating the business. These include marketing managers, production
supervisors, finance directors, company officers and owners

Management

Information need: income/earnings for the period, sales, available cash, production
cost

Decisions supported: analyze the organization's performance and position and take
appropriate measures to improve the company results. sufficiency of cash to pay
dividends to stockholders; pricing decisions

Employees

Information need: profit for the period, salaries paid to employees

Decisions supported: job security, consider staying in the employ of the company or
look for other employment opportunities

Owners

Information need: profit or income for the period, resources or assets of the business,
liabilities of the business

Decisions supported: considerations regarding additional investment, expanding the

business, borrowing funds to support any expansion plans.

External Users

External users are individuals and organizations outside a company who want
financial information about the company. These users are not directly involved in
managing and operating the business. The two most common types of external users
are potential investors and creditors. Potential Investors use accounting information to
make decisions to buy shares of a company. Creditors (such as suppliers and bankers)
use accounting information to evaluate the risks of granting credit or lending money.
Also included as external users are government regulatory agencies such as Securities
and Exchange Commission (SEC), Bureau of Internal Revenue (BIR), Department of
Labor and Employment (DOLE), Social Security System (SSS), and Local Government
Units (LGUs).

Creditors: for determining the credit worthiness of an organization. Terms of credit

are set by creditors according to the assessment of their customers' financial health.
Creditors include suppliers as well as lenders of finance such as banks.

Tax Authorities (BIR): for determining the credibility of the tax returns filed on behalf
of a company.

Investors: for analyzing the feasibility of investing in a company. Investors want to

make sure they can earn a reasonable return on their investment before they commit
any financial resources to a company.

Customers: for assessing the financial position of its suppliers which is necessary for
them to maintain a stable source of supply in the long term.

Regulatory Authorities (SEC, DOLE): for ensuring that a company's disclosure of

accounting information is in accordance with the rules and regulations set in order to
protect the interests of the stakeholders who rely on such information in forming their
decisions.

Suppliers: for determining whether the debts owed to them by their customers will be
paid when due or whether the customer has enough funds or resources to pay the
goods to be delivered or the services to be rendered.

Public: for determining how the business helps the economy and whether employment
is available in the company.