Users of Financial Information

Internal Users
-are the primary users of financial information who are
inside the reporting entity and are directly involved in
managing the company's daily operations. They are the
decision makers who make the strategic and operational
decisions for the company.

1. Investors/Owners/Stockholders
-These parties provide the financial resources to keep the
business going. They decide whether to invest or not depending on
the estimated amount of income on the investment Upon investment,
they would want to know the financial position or results of
operation of their business investment

2. Management
-organizational managers us financial information to set goals
for their companies. Managers evaluate their progress towards these
goals and use financial data as a guide for future management
actions

3. Employees
-although the employees are not directly involved in the
decision making of the company, they are nonetheless interested in
the financial information of the company to determine if they have a
future in the company

External Users
-External users are secondary users of financial information
who are parties outside the company. They may not be directly
involved in the company's operations but their decisions may
significantly affect the business entity .
1. Financial Institutions/Creditors
-Before extending credit, financial institutions use financial
information to determine the capacity of the business organization to
pay its obligations and their interests at the appropriate time

2. Government
-Financial information is important for tax
purposes and in checking of compliance with Securities and
Exchange Commission (SEC) requirements.

3. Potential Investors/Creditors
-Before making an investment or extending credit. potential
investors or creditors may not only be interested in the company's
current financial position and results of operations, but also in the
company's financial history. This should give them the assurance
that their investment will yield a reasonable rate of return or the
credit extended will be paid within a reasonable period of time.

Types of Business Organizations

1. Sole/ Single Proprietorship
-is a business owned and managed by only one person.

Advantages

a There are minimal costs and requirements in the formation.

b. The owner can withdraw the assets and profits of the business
anytime at his or her own discretion.
c. Decision making is solely in the hands of the owner.
d The duration of the life of the business solely depends on its
owner.

Disadvantages
a Resources are limited as the capital is provided only by the owner.
b. The liability of the owner is unlimited as he or she is accountable
to all creditors of the business.
c Infusion of knowledge in the management of the business is
limited to one person only, which is the owner.
 2. Partnership
-is a business organization owned and managed by two or
more people who agree to contribute money, property or industry to
a common fund for the purpose of earning a profit

Advantages
a. There are minimal costs and requirements in the formation.
b .There are more funds contributed from the investment of the
partners.
c. There is infusion of more knowledge, experience and skills from
two or more partners.
d. There can be division of labor between or among partners.

Disadvantages
a. The partners are liable for the actions of each partner as a result of
mutual agency.

3. Corporation

-Corporations are, for tax purposes, separate entities and are

considered a legal person. This means, among other things, that the
profits generated by a corporation are taxed as the “personal
income” of the company. Then, any income distributed to the
shareholders as dividends or profits are taxed again as the personal
income of the owners.

Advantages

 Limits liability of the owner to debts or losses

 Profits and losses belong to the corporation
 Can be transferred to new owners fairly easily
 Personal assets cannot be seized to pay for business debts

Disadvantages

 Corporate operations are costly

 Establishing a corporation is costly
 Start a corporate business requires complex paperwork
 With some exceptions, corporate income is taxed twice

4. Limited Liability Company (LLC)

-Similar to a limited partnership, an LLC provides owners with

limited liability while providing some of the income advantages of a
partnership. Essentially, the advantages of partnerships and corporations are
combined in an LLC, mitigating some of the disadvantages of each.

Advantages

 Limits liability to the company owners for debts or losses

 The profits of the LLC are shared by the owners without double-
taxation

Disadvantages

 Ownership is limited by certain state laws

 Agreements must be comprehensive and complex
 Beginning an LLC has high costs due to legal and filing fees