UNIVERSITY OF NEGROS OCCIDENTAL-RECOLETOS

Bacolod City
INTEGRATED SCOOL | GRADES 11 and 12

LEARNING MODULE

MODULE NO. 2

Users of Accounting
Information

Collage/Pictures ABMFUN180
Related to Subject

Fundamentals of Accountancy,
Description

Business and Management 1

Prepared by:
Dave Mark P. Sumagaysay
 Users of Accounting Information

Module 2: Users of Accounting Information

[picture representing the
module topic]

INTRODUCTION:

The work that accountants undertake ranges far beyond that of simply summarizing
information in order to calculate how much profit a business has made, how much it
owes, and how much is owed to it. Although this work is still very important,
accountants are involved in other types of work.
Aside from the accounting process mentioned in Topic 1, accountants can offer other
services. In this chapter we will learn about the external and internal users of accounting
information. As we all know, to be successful, business must interact with countless
customers, investors, creditors, and other groups. There is no known business that is
established just to transact with itself. These outside parties are the main sources of
income and/or funds that are key factors in determining if a business will be profitable or
not.
In this module we will discuss and differentiate external and internal users of accounting
information and give some examples of the people belonging in each group.

OBJECTIVES:

To do well in this module, you need to remember and do the following:

1. To define external users and gives examples
2. To define internal users and give examples
3. To identify the type of decisions made by each group of users
4. To describe the type of information needed by each group of users

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 Users of Accounting Information

Train of Thought
Rags to Riches
SM might be just being the most recognizable two-letter combination here in the
Philippines. If you think about it, it is amazing how these two letters tell a rich history.
SM is an avenue for almost anything you desire to do. From family gatherings, meetings
with friends, or simply enjoying some alone time for yourself, SM truly “got it all for
you”.
SM is no exception to the struggles faced by all start-up businesses. SM was
founded as a shoe store by Henry Sy, Sr. in October 1958 in downtown Manila. During
those times, the company catered to a relatively small customer base. Mr. Sy thought of
establishing a shoe store with a store layout and merchandising concepts never before
seen in the Philippines. The popular shoebox structure of its malls became the
trademark of SM. From its humble beginnings in Manila, SM is currently a retail giant.
The success and expansion of SM are patterned with a growing customer base.
Additionally, investors are more interested in investing in the company to share in
success. Creditors are now more willing to lend to the company since they are assured
that it has the capability to pay. Being a large player in the economy, SM is also closely
watched by government agencies.
In the past, SM need not produce financial reports to cater to the information
needs of interested parties. Nowadays, it is beneficial for both the company and outside
parties if SM provides such information needs.
In this chapter, we will discuss the different users of accounting data. As you will
know, reports are not only for interested outside parties but for internal parties as well.

DISCUSSION AND ACTIVITY 1:

Let’s get to know more about it!

The accounting process provides financial data for a broad range of individuals whose
objectives in studying the data vary widely. Two primary users of accounting
information have been identified as internal users and external users. Each group uses
accounting information differently, and requires the information to be presented
differently.
Internal Users
Accounting supplies managers and owners with significant financial data that is
useful for decision making. This type of accounting in generally referred to as managerial
accounting.

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 Users of Accounting Information

Management
• Employees that make decisions for the company; considered the brain of
the company
• Examples of users are board of directors, top management, middle-level
managers, and supervisors.
• Uses financial information in making business decisions; allows
management to identify problems immediately and to respond accordingly
Employees
• Persons in the company aside from managers and owners or stockholders;
do not have authority to implement decisions
• Examples of users are labourers, field workers, and non-managerial
employees.
• They use the accounting information to check if the business is profitable
enough to provide compensation and other benefits.
Owners or Stockholders
• Existing investors of the company; concerned mostly with the profits of the
company
• Examples of users are founders of the company, owners, stockholders,
partners and proprietors
• They use the accounting information that mainly concerned with the
returns earned from their investment; owners taking active roles in the
operations of the business; also make decisions.

External Users
Customers
• Main source of income of businesses; acquire goods and services for a fee
• Examples of users are patrons, clients, and people acquiring goods or
services of a company for a fee.
• They use the accounting information to decide whether or not to build
relationship with the business, to have any dealings with the business.
Creditors
• Providers of additional funds when the initial investment of owners is
exhausted; lend resources to businesses usually in form of money
• Examples of users are banks, lending institutions, wealthy individuals;
sometimes the government can also lend resources to a company

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 Users of Accounting Information

• They use the accounting information to decide whether or not to lend

resources to the business, try to see if the business is not very risky before
lending funds.
Potential Investors
• Providers of additional funds when the initial investment of owners is
exhausted; invest resources in the business hoping to earn decent returns
• Examples of users are wealthy individuals, other businesses planning to
invest.
• They use the accounting information to decide whether or not to invest in
the business; primary concern is the ability of the business to provide
acceptable returns.
Government
• An external user whose primary role is to regulate businesses; studies
financial statements to determine amount of taxes payable.
• Examples of users are different government agencies, taxing authorities,
government officials.
• Accounting information are used by the oversees business operations with
the end goal of improving the economy; checks the accuracy of the
financial statements to compute for the correct amount of taxes payable
Academe
• Uses accounting information primarily for academic purposes.
• Examples of users professors, lecturers students, and researchers
• Uses accounting information in the teaching of accountancy; researches
loopholes and possible improvement in the field of accountancy
General Public
• Citizens and residents of the country even though they do not plan to
transact with the business; use financial statements to gauge the condition
of the economy
• Examples of users are common people not connected with the company.
• User of accounting information is concerned with the overall performance
of the economy; use financial information to estimate economic
performance.

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References:
Frias, S. et al. (2016) Fundamentals of Accountancy, Business, and Management: A
Textbook in Basic Accounting 1. Quezon City: The Phoenix Publishing House Inc.
Florendo, J. (2016) RBS Fundamentals of Accountancy, Business, and Management 1
First edition. Manila: Rex Book Store, Inc. (RBSI).
Binuya, M. (2016) Fundamentals of Accountancy, Business, and Management. Pasay
City: JFS Publishing Services.
Ballada, W. et al. (2013) Basic Accounting Made Easy. Manila: DomDane Publisher.

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