Users of Accounting Information | Internal and External Users

Users of Accounting Information

Accounting is a means by which necessary financial information about business enterprise is communicated.  There are many users of accounting information who need financial information of enterprise in order to make important decisions.

Types of Users of Accounting Information

The users of accounting information can be divided into two broad categories:

  1. Internal Users
  2. External Users

Internal Users

The internal users are mainly management people, who needs timely information on cost of sales, profitability, etc. for planning, controlling and decision-making. The internal users include Owners, Chief Executive, Financial Officer, Vice President, Business Unit Managers, Plant Managers, Store Managers, Line Supervisors, etc. They have access to significant information of organization at micro level. Following are the internal users with their need of accounting information:

  1. Owners: The owners are person who has invested capital in the business. They are the people who bear maximum risk. They need information for the following purpose:
    • To know how much profit is earned or loss incurred by business.
    • To assess safety of their invested capital.
    • To decide whether they should invest more capital in the business or withdraw their invested capital from business.
  2. Management: Management are persons who are involved in running day to day activities of business. Managers and executives within the organization use accounting information to make informed decisions regarding operations, investments, and strategic planning. They need information for following purpose:
    • To make strategies to control cost.
    • To compare performance of business enterprise with similar business enterprises in the industry.
    • To take decision on the future of the business enterprise i.e., whether to expand to reduce in size.

External Users

The external users are external to the organization and do not have access to information at micro-level. They have limited authority, ability and resources to obtain the necessary information and have to rely on financial statements. The external users include Investors, Unions, Employee groups, Lenders, Financial institutions, Suppliers, Creditors, Customers, Government, Regulators, Social responsibility groups, Competitors etc. Following are the internal users with their need of accounting information:

  1. Potential Investors: Potential Investors are persons who are likely to invest in business enterprise. They rely on accounting information to evaluate the profitability and financial stability of a company. They look at safety of their investment and returns. Potential investors use this information to decide whether they should invest in the enterprise or not.
  2. Banks and Financial Institutions: Banks and Financial Institutions are organization who provide loans to the business enterprise. They assess a company’s creditworthiness by analyzing accounting information. They use this information to determine the risk of providing credit or loans. They need accounting information to decide whether to lend money to the business enterprise or not, to assess the ability of enterprise to repay the loan, to decide how much money to lend to the enterprise.
  3. Suppliers or Creditors: The Supplier or Creditors supplies goods/services to the enterprise on credit. They analyze an enterprise’s financial statements to assess its ability to pay for goods and services in a timely manner. They need accounting information to understand the paying capability of enterprise.
  4. Customers: Large customers or clients examines an enterprise’s financial statements to assess its financial stability and ability to meet future obligations.
  5. Government and Regulatory Agencies: Tax authorities, government agencies, and regulatory bodies require accounting information to ensure compliance with laws, regulations, and financial reporting standards. The government require financial statement of an enterprise to compile the national income. It helps them take policy level decisions. The government also required accounting information to assess whether enterprise has paid correct amount of taxes.
  6. Competitors: Competitors studies an enterprise’s financial statements to gain insights into its performance and competitive position in the industry.
  7. Employees and Workers: Employees are people who work for the enterprises and are paid salaries, wages, bonus etc. They refer to accounting information to know entitlement of their bonus and increments. They use accounting information to know and plan their future renumerations and career prospects. They also use accounting information to know whether the enterprise is depositing their dues to Provident Fund, ESIC etc.
  8. Social Responsibility Groups: The social responsibility groups rely on accounting information to know the employment generated by enterprise, amount spent by enterprise on Corporate Social Responsibility, to know whether the enterprise is performing its duties to keep the environment clean and protect the environment.

Download as PDF | Read Next: Qualitative Characteristics of Accounting Information

Checkout NCERT Class 11th Accountancy Study Material