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Properly kept accounts are good proof in dispute, they determine the amount of goodwill and facilitate in assessing various taxes. They possess curiosity in knowing whether the business is being conducted on sound lines or not and whether the capital is being employed properly or not. The progress and reputation of any business firm is built upon the sound financial footing. There are a number of parties who are interested in the accounting information relating to business. Accounting is the language employed to communicate financial information of a concern to such parties. Join over 1 million businesses scanning receipts, creating expense reports, and reclaiming multiple hours every week—with Shoeboxed.

Government agencies that track and use taxes are interested in the financial story of a business. They want to know whether the business is paying taxes according to current tax laws. The language in which tax-related financial statements are prepared is called IRC or Internal Revenue Code. Accounting supplies managers and owners with significant financial data that is useful for decision making. This type of accounting is generally referred to as managerial accounting. The articles and research support materials available on this site are educational and are not intended to be investment or tax advice.

3: Users of Accounting Information

Their ideas and the funds work for the efficient, convenient flow of business, growth, development, diversification, etc. The factors on priority lists are enhanced turnover, improved profitability, better dividend distribution, financial indicators, growth/expansion of business, better prospects regarding earnings, etc. The sub-category of internal Users is contended with published annual results, like Profit and Account and Balance Sheet and other miscellaneous statements.

An external user, such as trading partners, would use such financial reports for investment decisions. As you have learned, management accounting information uses both financial and nonfinancial information. This is important because there are situations in which a purely financial analysis might lead to one decision, while considering nonfinancial information might accounting final test lead to a different decision. For example, suppose a financial analysis indicates that a particular product is unprofitable and should no longer be offered by a company. If the company fails to consider that customers also purchase a complementary good (you might recall that term from your study of economics), the company may be making the wrong decision.

Government agencies

A large number of people, entities, and stakeholders have an interest in the financial well-being of businesses. A list is given below of some of the users of the information provided by accounting. These reports are important to the external users of accounting information. Although this group might not be the first to spring to mind, journalists also have their own stake in companies’ accounting information. Journalists monitor the economy and report on their findings, getting the most vital information from financial statements. These parties include individuals or companies who do business with the company producing the financial statement.

Owners use information on the financial statements to see how well the company is performing. They need to know if the company is profitable, or if there are areas that need to be addressed in order to make the company more profitable. Customers, investors, regulators, government agencies, creditors/suppliers, researchers, foreigners. Manager accounting or managerial accounting deals more with end users who are more internal users. We’re going to provide this information to executives, managers, internal auditors, sales staffs, budget analysts, controllers, etc.

Secondary qualities of useful accounting information:

External users of accounting information are those on the outside of a company looking in. The common thread between the two is that both use the exact same accounting information, but for different reasons. The accounting information that they use are the company financial statements. These are the income statement, statement of retained earnings, balance sheet and statement of cash flows. Bank and financial institutions that provide loan to the business are interested to know credit-worthiness of the business.

• Then, we’ll explore the external and internal users who hold a stake in the accounting information produced in various ways.
• The branch of accounting which deals with internal users is called management accounting.
• As you’ve learned, managerial accounting information is different from financial accounting information in several respects.
• External users (secondary users) – If a user of the information is an external party and is not related to the business then he/she is considered as one of the external or secondary users of accounting information.

Our writing and editorial staff are a team of experts holding advanced financial designations and have written for most major financial media publications. Our work has been directly cited by organizations including Entrepreneur, Business Insider, Investopedia, Forbes, CNBC, and many others. Finance Strategists is a leading financial literacy non-profit organization priding itself on providing accurate and reliable financial information to millions of readers each year. Without accounting information, these agencies may miscalculate the revenues generated for the government. The accounting information provides information necessary for making changes to the existing laws at the right moment for the economy and society’s betterment. External users have a direct or indirect interest in accounting information.

External Users

Accounting information shows the future potential of the business in terms of future profits for investors. Financial information is vital for government regulatory agencies as it allows them to monitor the economy and market. Before investing, an investor sees the financial report to figure out the business possibilities in the future. Financial information is important for an investor to ensure the investment is secure. Labor union negotiators want to see a firm’s financial statements in order to arrive at negotiating positions regarding the compensation and benefits of the employees that they represent.

Internal and external users use the financial information produced by a company for different reasons. The main items that interest this type of user are the financial statements. The accounting process involves a number of procedures that are completed in certain steps. One of the ending steps of the accounting cycle is to generate four financial statements. Now that you know what an external user of accounting information is, what exactly is the information that they use? Since an external user is someone with an outside interest in the company, they want to know the bottom line when it comes to company finances.

Customers

When signing a contract with a second company, financial statements become a key aspect of deciding which company to work for. When I think of something that is external, I think of something that is outside. So, if we are talking about external users of a company’s accounting information, then I would think of someone outside of the company. Who would be someone outside of a company that is interested in any information that is generated in the accounting process? Believe it or not, there really are several different categories of people that are very interested in this type of information. The user of accounting information is the driving force behind any business activity.

All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Let’s look at who are the internal and external users of account information and why they use it. It is crucial for the information provided in financial statements to be easily understood by the users. Lenders want to know if a business can pay for outstanding loans, and whether they have sufficient collateral to support the loans. Based on their review of a borrower’s financial statements, they may call a loan or be willing to extend additional funds.

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