USERS OF ACCOUNTING

INFORMATION
 There are two broad categories of users of
financial information:

•Internal users
•external users.
INTERNAL USERS
Primary 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.
• Give examples of internal users.
• What information will that user need that can be
answered by accounting?
• 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.
• 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.
EXTERNAL USERS
Secondary users
Who are the 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.
 External users of accounting information
include the following:
• 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.
• Give examples of external users.
• What kind of information do users
need that can be answered by
accounting?
SUMMARY OF THE DIFFERENCES BETWEEN
INTERNAL AND EXTERNAL USERS
• Internal users of accounting information are those who are involved in
planning, organizing and running the business. They need more detailed
information on a timely basis in order to support their decisions.
Examples of these internal users are managers, employees and owners.
• The external users of accounting information are those individuals or
organizations outside a company who are interested in its financial
information. Examples of these external users are potential investors,
suppliers and government agencies.
• Is the Local Government Unit (LGU)
interested in your accounting reports?
• Are the officers of the Local Government
Unit internal or external users? Why?
 activity
• Divide the class into two groups.
• Require them to act out internal and external users of accounting
information.
• Give them five to ten minutes to meet and prepare for their
presentation.
• Each group should be able to present the information needs of the
different users and relate these information to their decision-making
process.
 Quiz notebook
1. Give at least 3 internal users of accounting information.
2. Give at least 3 external users of accounting information.
3. Differentiate internal users from external users of
accounting information.(4 pts)