USERS OF

ACCOUNTING
INFORMATION
CHAPTER 3
 Define and explain the internal
users of accounting;

Define and explain the external

users of accounting;
Learning
Objectives Identify the type or decisions
made by each group of users;
and

Describe the type of information

needed by each group of users.
 Statement of Financial
Position

Statement of
Comprehensive
Income
Sources of Statement of Changes
Accounting in Equity

Information Statement of Cash

Flow

Notes to the Financial

Statements
1. Statement of Financial Position
It is a statement showing the financial position of the company at a particular
time. The balance sheet is composed of the company's assets, liabilities and
stockholders' equity.
The first section of the balance sheet gives the listing of all the assets of the
firm. Current assets are presented first. These are the cash and other items such
as accounts receivable and inventories that can be converted into cash within one
year. Prepaid expenses and accrued income are also included. Next to current
assets are the non-current assets. The non-current assets comprise the company's
land, building, machinery, equipment, furniture and fixture, transportation
vehicle and many more.
1. Statement of Financial Position
The liabilities section comprises of current and non-current liabilities. The
current liabilities include accounts payable, short-term notes payable, accrued
expenses, taxes payable, interests payable and other obligations that are due
within one year. The non-current liabilities include long-term notes payable,
bonds payable and other obligations which are due beyond one year.
The equity is the net worth or the residual value of the company. It is the
difference between the total assets and total liabilities.
2. Statement of Comprehensive Income
It is a formal statement showing the result of the operations for a certain period
of time. It presents the revenues generated during the operating period, the
expenses incurred, and the company's net earnings. It is used to distinguish four
broad classes of expenses: (1) cost of goods sold, which is a direct cost
attributable to producing the product sold by the firm; (2) general and
administrative expenses, which correspond to overhead expenses, salaries,
advertising, and other operating costs that are not directly attributable to
production; (3) interest on the firm's debt; and (4) taxes on earnings owed to
governments.
3. Statement of Changes in Equity
The statement of changes in equity is a required basic statement that shows the
movements in the elements or components of the equity. The capital is increased
through additional investment and net income, and it is reduced by a net loss and
withdrawal.
4. Statement of Cash Flow
It is statement that shows the firm's cash receipts and cash payments during a
specified period of time. While the income statement and balance sheet are based
on accrual methods, statement of cash flows recognizes only transactions in
which cash changes hands. The balance sheet changes could be reviewed to
determine the facts, but the cash flow statement has already integrated all that
information. As a result, savy business people and investors utilize this
important financial statement.
5. Notes to the Financial Statements
These are the guidelines used in the preparation of the
financial statements. Detailed information which does not
appear in the financial statements is also located in this
part for clarification.
 Internal Users

Classification:

External
Users
External Users
those groups or persons who are
outside the organization for whom
accounting function is performed.
1. Investors
These are the people who would like to take as part-
owner of the company as partner or stockholder. Thus,
they provide additional capitalization to the company
for the purpose of expansion, acquisition of new
machine or equipment, putting-up a new plant or
building, and other possible means of using the funds
invested. These investors are willing to take the risk
of placing their money with the hope of receiving an
acceptable return in the form of income, dividends, or
capital appreciation.
 2. Creditors
Borrowings are provided by creditors. They are
individuals or financial institutions like banks, credit
union, and cooperatives. These creditors provide funds
to the company in exchange for interest. Interest rate
depends on the capacity of the company to pay their
obligations. If the company is risky than most of the
other companies, the creditors have to charge them with
a higher interest. And if the company is less risky than
most of the companies, creditors will charge the
company with a lower interest. Funds provided to
companies are called loans. These loans vary from short-
term or long-term and secured or unsecured loan.
 3. Suppliers
The suppliers are the firm's seller of goods or raw
materials needed in the conduct of business. The
suppliers, just like the creditors are interested on the
capacity of the firm to receive payments on time. The
only difference between the two is that the suppliers are
more concerned on the short-term rather than the long-
term.
 4. Government
Agencies
The financial statements are used by the government
agencies for the purpose of regulating the businesses in
the economy. They want to make an assurance that the
companies are complying with the law of the land. The
different government agencies have their different roles
in checking the financial statements of the company.
 Government
Agencies
a. Bureau of Internal Revenue (BIR).
As a government agency, it verifies if the business
is complying with its promulgated rules and
regulations. This government agency is more
particular to the firm's revenues and expenses.
They are concerned on how much tax should be
imposed to the business. They can determine this
by looking at the financial statements, particularly
on the financial result of the operations.
Government Agencies
b. Bangko Sentral ng Pilipinas (BSP). It is the bank of all the banks
in the Philippines. The BSP provides policy directions in the areas
of money, banking and credit. It supervises operations of banks and
exercises regulatory powers over non-bank financial institutions
with quasi-banking functions. All financial institutions are required
to submit their reports to BSP regularly. BSP does not deal with the
public. It can only accept deposits from and grant loans to banks
(for commercial, production and similar purposes such as exports
and agricultural activities) and as a lender of last resort, provides
advances to banks in time of emergencies or if financial problems
directly threaten monetary and financial stability.
 5. Customer
The customers are the users of the goods and/or services of
the company. They need to know the status of the company
through the accounting information whether they will
continue to patronize their product or not. It is important to
them since the product or services they use are already part
of their normal activities. Likewise, customers who have
been informed that the price of a certain commodity has
increased would continue patronizing the business. If the
price is fair enough and the stability of the business gives
an assurance of continuous supply of goods and services
could be determined from the financial reports of the
company.
Internal Users
- persons working within the
organization. They make actions and
decisions pertaining to the internal
activities of the business. They are
the decision makers, the support
group, the revenue generators or the
front-liners.
 These are the people who own the
company. They took the risk of putting-up
the companies in exchange for profits. They
are also the one who elected or appointed
1. Owners or the board of directors of the company. They
are the main reason why the company
Stockholders existed in the first place. To continue or not
to continue their holdings in the company,
they need to see the financial reports of the
company.
 The board of directors is the think-tanker of the
corporation. They are appointed or elected by the
stockholders to be their agent in the company.
The board of director will determine what
strategies should be undertaken by the company
in order to be competitive in the market. They
2. Board of will deal with pricing, acquisition of assets,
borrowing, merger, issuance of new shares and
Directors other more. And in order, to come-up with such
decision, a financial report is required. From the
financial reports, they can assess if they are
capable of making such an action.
 They are in charge of implementing the
decisions made by the board of directors.
They become responsible for organizing,
planning, directing and controlling the day-
to-day operations of the business. This
3. Managers includes buying, manufacturing, advertising,
and distributing. The actual operations of the
company must be controlled to ensure that it
is implemented as planned. A manager is also
responsible in protecting the business
resources and helping it grow in value. Like
the board of directors, managers need
financial reports in evaluating the
performance of the company.
 The employees are the people working in
the company. If the company has an
employee union and wants to demand for
a higher wage, benefits, good working
4. Employees conditions and security of tenure, they
would need to look at the financial
statements of the company to justify their
demand. Thus, the employees can also
understand the company if they cannot
afford to grant higher salaries and more
benefits if the business is losing as
reflected in its financial reports.
THANK
YOU!
- Ms. Irene Mae D. Belda