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Users of Accounting Information

There are two broad categories of users of financial information:
internal and external users.

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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.

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Management
Organization’s management requires accounting information for
analyzing the performance and actual position of the business.
Accounting information helps the management to arrive at an
evaluated decision. It helps with cost determination, investment
decisions, helps to identify warning signals in case of a downfall etc.

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Owners
Accounting information is presented to internal users usually in the
form of management accounts, budgets, forecasts and financial
statements. This information will support whatever decision of the
internal users.

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Employees
Employees are interested to know the accounting details of their
organization so that they are aware of overall profitability of the
company which has a direct impact on their remuneration and job
security.

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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.

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Creditors
They need financial information in 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.

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Investors
They need financial information in 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.

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Suppliers
Other businesses which supply goods to an organization on credit
would also want to assess the repaying capacity of that organization
before providing any form of credit. Accounting information plays a
crucial role in this case.

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Regulatory Authorities
They need financial information in 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.

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Banks & Non-Banking Financial Companies

They are a crucial part of any business environment since they
advance both short & long-term loans to a business. Accounting
information helps them in determining the creditworthiness of the
organization. Based on the financial health of an organization, the
future terms and conditions of credit are assessed by the Banks and
NBFCs.

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Public
General public would want to know the financial health of a
business to get a fair idea of the firm’s overall economy of the
nation. It can help to analyze employment trends, the general
financial stability of a country etc.

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MANAGEMENT
Internal reports (Managerial reports) are
Helps in the determination of taxes and prepared for management use.
preparation or various tax returns required
by the government Managerial
Reports

Tax Special Regulatory Agencies –

Taxing Agency (BIR) REPORTING PROCESS
Reports Reports BSP, SEC, etc

Audited Monthly/Quarterly/Annual reports

General Purpose Financial Statements – Financial required by the nature of their
being audited by external CPA attesting its Reports organization
fair presentation and validity making it
reliable and acceptable by the stakeholders.

Suppliers Lenders Investors Employees/Customers Regulatory Board

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Types of Business Activities

1. Financing Activities
2. Investing Activities
3. Operating Activities

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Financing Activities
These are the start up capital in cash and in other resources.
-- if owner’s contribution is insufficient, additional financing can be
extended by banks and other financial institutions.

Example: Mr. A. invested a capital worth P500,000 to start his own

manufacturing business.

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Investing Activities
As business needs resources other than cash to be able to operate,
it engages to investing activities such as acquisition of land,
furniture, machineries, and equipment.

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Operating Activities
These are activities related to the operations of the business related
to the earnings of income by selling goods or services and by
incurring expenses such as wages, rent, utilities.

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Managing the Business

Management – getting things done by using resources and directing
people as efficiently as possible to be able to accomplish the goals
of the business.

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Management involves 4 processes:

1. PLANNING – starts with determining the goals of the business and
lining up activities to accomplish them.
2. ORGANIZING – creating divisions, appointing managers, hiring and
defining roles or duties of each one (staffing)
3. DIRECTING – overseeing the daily operation of carrying out the
planned activities
4. CONTROLLING – guarding and guiding people to ensure tasks and
activities are done according to plans and some standard of performance.

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