LESSON 2

Users of
Accounting
Information
ting, Business and Management 1 – Lesson 2
 Users of Accounting Information
Accounting information helps users to make better economic decisions.
Financial reports supply the information these groups demand in order for
them to make decisions connected to the business.
Companies typically produce two types of financial statements:
• General purpose financial statements – intended to provide information
to those who do not have the capability to request directly from the
company. Some examples of such groups are the customers, creditors,
potential investors, and government agencies.
• Special purpose financial statements – usually produced based on the
requests of parties that have capability to ask for accounting information
directly from the company. Some examples of such groups are the board
of directors, managers, employees, and the stockholders or owners
(existing investors).
Fundamentals of Accounting, Business and Management 1 – Lesson 2
 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.
Examples of external users are customers, creditors,
potential investors, government, academe and public.

Fundamentals of Accounting, Business and Management 1 – Lesson 2

 External Users
Decisions made using
accounting information/
Type of User Definition Example of Users
Benefits from accounting
information
Patrons, clients, Whether or not to build
Main source of income of
people acquiring goods relationship with the business,
Customers businesses; acquire goods
or services of a to have any dealings with the
and services for a fee
company for a fee business.
Banks, lending
Providers of additional funds
institutions, wealthy
when the initial investments Whether or not to lend
individuals; sometimes
Creditors of owners is exhausted; lend resources to the business is not
the government can
resources to businesses very risky before lending funds
also lend resources to
usually in the form of money
a company
Providers of additional funds
when the initial investment Whether or not to invest in the
Wealthy individuals
Potential of owners is exhausted; business, primary concern is the
other businesses
Investors invest resources in the ability of the business to
planning to invest
business hoping to earn provide acceptable returns
decent returns
Fundamentals of Accounting, Business and Management 1 – Lesson 2
 External Users
Decisions made using accounting
Type of User Definition Example of Users information/ Benefits from
accounting information
Oversees business operations
An external user whose
Different government with the end goal of improving
primary role is to regulate
agencies, taxing the economy; checks the
Government businesses; studies financial
authorities, accuracy of the financial
statements to determine
government officials statements to compute for the
amount of taxes payable
correct amount of taxes payable
Uses accounting information in
Uses accounting information Professors, lectures,
the teaching of accountancy;
Academe primarily for academic students, and
possible improvements in the
purposes researchers
field of accountancy
Citizens and residents of the
country even though they do Concerned with the overall
Common people not
General not plan to transact with the performance of the economy;
connected with the
Public business; use financial use financial information to
company
statements to gauge the estimate economic performance
condition of the economy
Fundamentals of Accounting, Business and Management 1 – Lesson 2
 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. They need more
detailed information on a timely basis in order to
support their decisions. These include marketing
managers, production supervisors, finance directors,
company officers and owners.

Fundamentals of Accounting, Business and Management 1 – Lesson 2

 Internal Users
Decisions made using accounting
Type of User Definitions Example of Users information/ Benefits from
accounting information
Uses financial information in
Employees that can make Board of directors, top
making business decisions;
decisions for the company; management, middle-
Management allows management to identify
considered the brain of level managers,
problems immediately and to
the company supervisors
respond accordingly
Persons in the company
aside from managers and Laborers, field Check if the business is
Employees owners or stockholders; do workers, non- profitable enough to provide
not have authority to managerial employees compensation and other benefits
implement decisions
Mainly concerned with the
Existing investors of the Founders of the
returns earned from their
Owners or company; concerned company, owners,
investment; owners taking active
stockholders mostly with the profits of stockholders, partners,
roles in the operations of the
the company proprietors
business; also make decisions
Fundamentals of Accounting, Business and Management 1 – Lesson 2
 ACTIVITY 2.1
Answer the questions.
1. What information will internal user need that can be answered by
accounting?

2. What kind of information do the external user need that can be

answered by accounting?

3. Do companies prioritize some external user over the others?

If yes, what group of external users does a company prioritize? Why?

4. Give decisions creditors make before dealing with a business. How

does accounting information help creditors in these decisions?

Fundamentals of Accounting, Business and Management 1 – Lesson 2