Fundamentals of

Accountancy, Business
and Management 1 First
Quarter Module 3:
External and Internal
Users of Financial
Information

What I Need to Know

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 The accounting process provides financial data for a broad
range of individuals whose objectives in studying the data vary widely.
Three primary users of accounting information were previously are
Internal users, External users, and Government/ IRS. Each group
uses accounting information differently, and requires the information
to be presented differently. Remember, you are to work on this module
independently. It is expected that you will make the most of this
module and perform the activities/tasks given wholeheartedly.

At the end of this lesson, I will be able to:

 define external users and gives examples (ABM_FABM11-
IIIa-7)
 define internal users and give examples (ABM_FABM11-
IIIa-8)

What I Know

To find out what you already know about the topic to be

discussed in this module, answer the Pre-test first before you proceed
with the module. Write your answers in your notebook.
A. The following are users of financial statements. Identify if the
users mentioned below is external or internal.
1. Customers 4. Factory Manager
2. Bureau of Internal Revenue 5. Suppliers
3. Labor Unions 6. Potential Investors

B. The following questions could be asked either by an external or

internal user. Identify each of the questions as being more likely
to be asked by an internal user or an external user.

1. What price should we set for our products?

2. Did the company earn a satisfactory income?
3. Should we hire more employees?
4. How does the company’s profitability compared to other companies?
5. What does it cost us to manufacture each unit produced?
6. Will the company be able to provide a return to its stakeholders?

What’s In

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 Directions: Fill in the table below with your answers on the second
and third columns, respectively.
BRANCHES AND AREAS TYPE OF REPORT INTENDED USERS
OF ACCOUNTING GENERATED
1. Financial Accounting
2. Management Accounting
3. Government Accounting
4. Auditing
5. Tax Accounting
6. Cost Accounting
7. Accounting Education
8. Accounting Research

What’s New
Directions: Arrange the jumbled letters to form word/s related to
users of accounting information. Put those terms in their respective
group of users and answer the questions that follow.
“I’m scrambled! Move Quickly!
1. TOTNPALEI VOSSINTRE 6. TENSDUTS 2. PEMSEEYOL
7. AXT TIROAHISTUE 3. RESMOTSUC 8.
BUILPC 4. TIROSDECR 9. PUPLISER 5.
TEGMONREVN 10. GAMESARN

INTERNAL USERS EXTERNAL USERS

Questions:
1. Who are the internal users and external users of accounting
information?

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 2. What is your basis in determining where the given users
belong?
3. Why do you think these users need accounting information?

Rubrics for rating your answers:

5- If the paragraph consists
complete information.
4- If the paragraph consists
3- If the paragraph consists
2- If the paragraph consists
1- If the paragraph consists
of 5 or more sentences with correct and
of 3 to 4 sentences
with correct information.
of 2 to 3 sentences with correct information.
of 2 sentences with correct information
of only one sentence with correct information.

What Is It

DISCUSSION: Read the discussion that follows in order to understand and

gain more knowledge about the lesson.
Who uses accounting data or information?

There are two broad categories of users of financial information:

Internal Users  management  employees
 owners or stockholders
External Users
 customers
 creditors
 investors
 government
 tax authorities (BIR)
 regulatory authorities
 suppliers
 academe
 general public
 lenders

What kinds of information do users need that can be answered by

accounting?
 income or profit of the business
 resources or assets of the business
 liabilities or amount owned by the business to its suppliers
 taxes paid by the business
 salaries and other benefits paid to employees

USERS OF ACCOUNTING INFORMATION

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TYPE OF USER DEFINITION EXAMPLE OF DECISIONS MADE
USERS USING
ACCOUNTING
INFORMATION/
BENEFITS FROM
ACCOUNTING
INFORMATION
CUSTOMERS Main source of Patrons, clients, Whether or not to
income of businesses; people acquiring build relationship
acquire goods and goods or services of a with the business, to
services company for a fee have dealings with
the business, to
assess the financial
position of its
suppliers which is
necessary for them to
maintain a stable
source of supply in
the long term

CREDITORS/ Providers of Banks, lending Whether or not lend

additional funds institutions, wealthy resources to the
SUPPLIERS/
when the initial individuals; business, try to see if
LENDERS investment of owners sometimes the the business is not
is exhausted; lend government can also very risky before
resources to lend resources to a lending funds;
businesses usually in company determines the credit
the form of money worthiness of an
organization

POTENTIAL Providers of Wealthy individuals, Whether or not to

INVESTORS additional funds other businesses invest in the
when the initial planning to invest business, primary
investment of owner concern is the ability
is exhausted; invest of the business to
resources in the provide acceptable
business hoping to returns; they want to
earn decent returns make sure they can
earn a reasonable
return on their
investment before
they commit any
financial resources to
a company

GOVERNMENT An external user Different Oversees business

whose primary role is government/ operations with the
to regulate end goal of improving
regulatory agencies,
businesses; studies the economy; checks
taxing authorities,
financial statements the accuracy of the
government officials
to determine amount financial statements

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 of taxes payable to compute for the
correct amount of
taxes payable;
ensures the
company’s disclosure
of accounting
information whether
it 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
ACADEME Uses accounting Professors, Uses accounting
information primarily lecturers, students, information in the
for academic and researchers teaching of
purposes accountancy;
researches loopholes
and possible
improvements in the
field of accountancy

GENERAL Citizens and Common people not Concerned with the

PUBLIC residents of the connected with the overall performance
country even though company of the economy; use
they do not plan to financial information
transact with the to estimate economy
business; use performance
financial statements
to gauge the
condition of the
economy

MANAGEMENT Employees that can Board of Directors, Uses financial

make decisions for top management, information in
the company; middle-level making business
considered the brain managers, decisions; allows
of the company supervisors management to
identify problems
immediately and to

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 Make a connection!

Task: Fill in 5 internal users and 5 external users in the first

column and explain the purpose and the type of information
needed by each user. Do it in your notebook.

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 USERS OF FINANCIAL INFORMATION

Explain the type of Information needed by the specific

users of accounting on the first column.

EXTERNAL/INTERNAL USERS THE TYPE OF INFORMATION NEEDED

What I Have Learned

Directions: Rate yourself. For each parameter, choose the

corresponding emoticon that shows how much you understand
the lesson.

1. I know who uses accounting information.

2. I can distinguish the type of information needed by internal
users.
3. I can distinguish the type of information needed by external
users.
4. I can determine the accounting information needed by
investors and creditors.

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 What I Can Do

Directions: Read the case below and answer the questions that
follow. Write your explanation in your notebook.

Amadeo Company, a textile manufacturer, submitted a proposal to

Philippine Rural Bank (PRB) which states that the company
plans to borrow Php 5, 000, 000.00 payable in two (2) years
from now. Amadeo Co. also promises to pay interest of Php
150, 000 every six months. PRB examined Amadeo Company’s
financial statements. Based on the bank’s analysis, they formed
the following conclusion:
1. The profit of Amadeo Company grew by an average of 10% each
year for the past three years.
2. Amadeo COMPany only has a small amount of borrowings.
3. Amadeo Company never defaulted on its borrowing in the past.

Assuming no other use for its excess funds, should PRB

lend Money to Amadeo Company? Justify your answer.

Rubrics for rating your explanation/answers:

*Respond to the question in a well-organized paragraph with a clear
topic sentence, sufficient relevant evidence, and an explanation.
Acceptable Good (80 Excellent (100
(60 pts) pts) pts)
Topic Sentence Unclear or Basic topic Clear topic
lacking topic sentence, sentence
sentences doesn’t fully introducing
introduce
response
Evidence Minimal or One to two Three or more
irrelevant relevant relevant
evidence supporting supporting
details details
Explanation No explanation Minimal Complete
explanation explanation

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 Assessment

Multiple Choice. Choose the letter of the correct answer. Write it in

your notebook.
1. Which of the following are considered interested in determining the
return of investment in the business?
a. employees c. management
b. creditors d. owners
2. Which of the following is not considered as an external user?
a. employees c. suppliers
b. regulatory agency d. taxing authorities
3. Which of the following statements about users of accounting
information is correct?
a. Creditors are external users.
b. Employees are external users.
c. Management is an external user.
d. Tax authorities are internal users.
4. Who carries the responsibility to review the work of an accountant?
a. the board of directors c. the external auditor
b. the internal auditors d. the management
5. Which of the following is an internal user of the company’s financial
information?
a. board of directors
b. Stockholders of the company
c. holders of the company’s bonds
d. creditors with long-term contracts with the
company
6. This group of users of accounting information invested resources to
the company with hopes of earning acceptable returns.
a. Creditors c. Owners or Stockholders
b. Government d. Potential Investors 7.
Management consists of the following:
a. Board of Directors, supervisors, top management, laborers
b. Top management, board of directors, middle managers,
supervisors
c. top management, supervisors, field workers, board of
directors
d. Owners, top management, middle managers, supervisors and
laborers
8. Creditors differ from potential investors in what aspect?
a. Creditors are weary of the riskiness of a company.

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b. Wealth individuals can only invest not lend to a company.
c. Creditors received fixed amount of fee in their loans to the
business.
d. Creditors are exposed to more risks than investors.
9. Amina Peramo Co. is a bank organized and operating here in the
Philippines. Which of the following is least likely to be a user of its
accounting information?
a. Bureau of Internal Revenue
b. Depositors of the Company
c. Internal Revenue Service
d. Top Management of the Company
10. Employees are mainly concerned with
a. The company’s ability to provide other employment opportunities.
b. The management’s plan to expand the company to yield more
revenues.
c. The company’s ability to pay salaries, compensation and other
benefits.
d. The company’s ability to pay obligations when they become due.
11. Which group of users can use general purpose financial
statement?
a. External users only
b. Internal users only
c. External or internal users
d. Customers, creditors, and potential investors
12. Why are managers considered internal users of financial
statements?
a. Because they use the accounting information to make decisions for
the company
b. Because managers aim to improve the company
c. Because managers are usually the persons responsible to prepare
the financial statements
d. Because managers can request accounting information directly
from the company

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