Who are the users of accounting information and what are their importance to business?
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An accounting information system processes financial and operational data into reports. These reports are useful for users of accounting information. The two broad groups of users of accounting information are internal users and external users. Show
Let’s have a look at who are internal and external users of accounting information and why they need this information. Internal users of accounting informationInternal users of accounting information are individuals who plan, organize, and run the business. They are primary users of accounting data. These include owners, managers, and employees. Internal users need detailed information on a timely basis to better answer the following questions.
Let’s list down all the internal users and explore their informational needs. Owners Owners use accounting information to assess the feasibility and profitability of their investment. This information enables them about the organization’s ability to pay dividends. Accounting information is helpful when they assess the stability of the overall business and prepare future courses of action. Managers The managers are those individuals who are authorized by the owners to operate the business. They need this information because they develop goals, strategic plans, company policies, and make decisions based on the organization’s directions. Employees Information about the financial stability and profitability of the employer is much important for the employee. It enables them to determine the job security and the ability of the employer to pay higher wages or provide more job opportunities in the future. External users of Accounting informationExternal users are individuals and organizations outside a business entity who need financial information about the business entity. The two most common types of external users are investors and creditors. External users are secondary users of accounting information. They need accounting information to support their decisions. Here are a few examples of questions asked by external users.
Let’s list down all the external users and explore their informational needs.
Investors Investors are the providers of capital in the business. They need information so that they could make investment decisions. They use accounting information to decide whether to buy, hold, or sell ownership shares of a business entity. Their decisions might depend on the analysis of past financial performance of the company and its financial position. They also try to predict from the past what might happen to the company in the future. Creditors Creditors are usually suppliers and bankers. They use accounting information to estimate and evaluate the risk of granting credit or lending money. Financial statements assist the lenders to determine the borrower’s continues ability to pay interest and repay the principal of the loan at maturity. Customers Customers are interested in the financial strength of an entity, particularly when they rely on that entity for the long-term supply of key goods or services. Auditors External auditors are external users of accounting information. They examine the financial statements and other accounting records of the business in order to form an audit opinion. Independent opinion of external auditors is proof of the accuracy of financial statements. It is important for the stakeholders of the business. Tax authorities Tax authorities need accounting information to determine the correct amount of tax in their tax returns. The tax authorities conduct an audit of books of accounts in order to assess the authenticity of tax information. Regulatory agencies An example of a regulatory agency is the Securities and Exchange Commission or the Federal Trade Commission. They want to know whether the company is operating within prescribed rules. Labor unions Labor unions work for the protection of labor rights. They need accounting data because they want to know whether the owners have the ability to pay increased wages and benefits. Public The general public also takes interest in accounting information for different purposes. They include journalists, academics, analysts, students, or more others who fall into the category of external users. Why users of accounting information is important?Accounting information has an impact on decision making by helping stakeholders, creditors and other users to evaluate past and future events. Thus, it confirms or corrects pre-decided expectations.
Who are the users of accounting information system?An accounting information system (AIS) is used by companies to collect, store, manage, process, retrieve, and report financial data. AIS can be used by accountants, consultants, business analysts, managers, chief financial officers, auditors, and regulators.
Who are the users of accounting information and what is the relevance of the information to the various types of decisions that they make?Users of accounting information are internal and external. External users are creditors, investors, government, trading partners, regulatory agencies, international standardization agencies, journalists and internal users are owners, directors, managers, employees of the company.
Who are the users of accounting explain and give examples?Examples of internal users are owners, managers, and employees. External users are people outside the business entity (organization) who use accounting information. Examples of external users are suppliers, banks, customers, investors, potential investors, and tax authorities.
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