Users of Financial Information
depends on its owner.
Internal Users are the primary users of financial
information who are inside the reporting entity
1. Investors/ Owners/ Stockholders - These
parties provide the financial resources to keep the
bunn going. They decide to invest or not depending
on the estimated amount of income on the
investment. Upon investment, they would want to
know the financial position or results of operation of
their business investment.
2. Management Organizational managers use
financial information to set goals for their
companies. Managers evaluate their progress
towards these goals and use financial data as a
guide for future management actions.
3. Employees - Although the employees are not
directly involved in the decision making of the
company, they are nonetheless interested in the
financial information of the company to determine if
they have a future in the company.
External Users are secondary users of financial
information who are parties outside the company. They
may not be directly involved in the company's operations
but their decisions may significantly affect the business
entity:
1. Financial Institutions/ Creditors - Before
extending credit, financial institutions use financial
information to determine the capacity of the
business organization to pay its obligations and their
interests at the appropriate time.
2. Government Financial information is important
for tax purposes and in checking of compliance with
Securities and Exchange Commission (SEC)
requirements.
3. Potential Investors/ Creditors - Before making
an investment or extending credit, potential
investors or creditors may not only be interested in
the company's current financial position and results
of operations, but also in the company's financial
history. This should give them the assurance that
their investment will yield a reasonable rate of
return or the credit extended will be paid within a
reasonable period of time.
 Sole/ Single Proprietorship is a business owned
and managed by only one person.
Advantages
 There are minimal costs and requirements in the
formation.
 The owner can withdraw the assets and profits of
the business anytime at his or her own discretion.
 Decision making is solely in the hands of the owner.
 The duration of the life of the business solely
Disadvantages
 Resources are limited as the capital is provided only
by the owner.
 The liability of the owner is unlimited as he or she is
accountable to all creditors of the business.
 Infusion of knowledge in the management of the
business is limited to one person only, which is the
owner.
 Partnership is a business organization owned and
managed by two or more people who agree to
contribute money, property, or industry to a
common fund for the purpose of earning a profit.
Advantages
 There are minimal costs and requirements in the
formation.
 There are more funds contributed from the
investment of the partners.
 There is infusion of more knowledge, experience,
and skills from two or more partners.
 There can be division of labor between or among
partners.
Disadvantages
 The partners are liable for the actions of each
partner as a result of mutual agency.
 A general partner has unlimited liability if the other
partners are limited partners or are insolvent.
 Disagreement between or among partners can lead
to the withdrawal of one or more partners.
 The death, retirement, withdrawal, or incapacity of a
partner results in the dissolution of the partnership.
 Admission of a new partner depends upon the
approval of the other partners.
 Corporation is a form of business organization
managed by on elected board corpora the ine form a
buind storariers and the unit of ownership is called
share of stock.
Advantages
 The stockholders only have limited liability, as their
liability extends only up to the amount of their
capital investment.
 A corporation has continuous existence as its life is
indefinite.
 There is more infusion of funds from the
stockholders or investors.
 Shares of stocks can be transferred without the
consent of other shareholders. * Management of the
corporation is vested upon its board of directors.
Disadvantages
 A corporation entails many requirements and is
more costly than a partnership.
 The government exercises strict control over
corporations and imposes high
 Shareholders have little or no participation in the
management
 Distribution of net income depends upon the
declaration of dividends by the board of directors.
 * In large corporations, there is formal or
impersonal relationship between employees and
management due to the big number of employees.
Hence, chances of creating a personal and friendly
atmosphere in the corporate setting are minimal.
 Cooperatives Under Section 3 of Republic Act 6938,
a cooperative is a duly registered association of
persons, with a common bond of interest, who have
voluntarily joined together to achieve a lawful
common social or economic end, making equitable
contributions to the capital required and accepting a
fair share of the risks and benefits of the
undertaking in accordance with universally accepted
cooperative principles.
 In short, a cooperative is an association of small
producers and consumers who come together
voluntarily to form a business which they own,
manage, and patronize.
Advantages
 The prices of products offered to consumers are
lower due to direct purchases of cooperative
members from producers or manufacturers.
 Cooperatives are managed by the members
themselves; thus, saving on of the consumers
management costs which leads to lower prices of
products inuring to the benefit
Disadvantages
 There is limited capital due to underprivileged
members.
 The cooperative is strictly for members only and
shares cannot be transferred to non-members.
 Lack of efficient management as it is managed only
by its members