FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND MANAGEMENT 1

Lesson 2: Users of Accounting Information

Pretest

Fill in the blanks for value received and value parted with.

Transaction Value Value Parted

Received With
1.Bought merchandise for cash
2.Bought merchandise on credit
3.Bought furniture on credit
4. Barrowed money from the bank
5. Sold merchandise for cash
6. Sold merchandise on credit
7. Deposited money at the bank
8. Paid the debt due to a creditor
9. Collected a claim from a customer
10. Returned to the supplier merchandise bought on credit
11. Received merchandise returned by a buyer who originally bought
on credit
12.Paid the rent of the building
13. Paid for advertisement to the Manila News
14. Paid to X Brokerage for the delivery of goods bought
15. Paid for the repair of the furniture of the business.

I. INTRODUCTION

INTRODUCTION (5
MINS)
The accounting information is prepared to satisfy various users of the business organization. These
users have different interests and purposes in the business; be it for decision making or a requirement.

At the end of this lesson, the learners should be able to:

1. Define external and internal user of financial information and give examples;
2. Identify the type and decisions made by each group of users;
3. Solve exercises and problems on the identification of users of information, type of decisions to
be made, and type of information needed by the users; and
4. Cite users of financial information and identify whether they are external or internal users.

II. ACTIVITY

Directions. Do a brainstorming about “Users of Accounting Information.” Answer the following questions.

1.Who are the external and internal users of accounting information. Explain the specific needs of each
type.
2.Differentiate external from internal users of accounting information using Venn Diagram
3. In your own point of view, which external users benefits the most from accounting information? Explain.
4. How can the operations of a company affect the general public? Is the effect direct or indirect? Explain.
5. Cite similarities and differences of existing and potential investors. Why do they not fall under one
classification of accounting information users.
III. ANALYSIS

1. Using the KWL chart, make a group summarization of the activity.

2. Classify each of the following as either external user (E) or internal user (I).
__________Academe __________Potential investors
__________General public __________Government
__________Employees __________Management
__________Owners __________Stockholders
__________Government __________Management

IV. ABSTRACTION

Users of Accounting Information: https://www.youtube.com/watch?v=2TT5iFv_6_A

Type of Users Definition Example of Users Decisions made/Benefits

E=external; I=internal from using accounting
information
Customer (E) Main source of income Patrons, clients, people Whether or not to build
of businesses; acquire acquiring goods or relationship with the
goods and services for services of a company business, to have any
a fee for a fee dealings with the
business.
Creditors (E) Providers of additional Banks, lending Whether or not to lend
funds when the initial institutions, wealthy resources to the
investment of owners is individuals; sometimes business, try to see if the
exhausted; lend the government can also business is not very risky
resources to businesses lend resources to a before lending funds
usually in the form of company
money
Potential Investors (E) Providers of additional Wealthy individuals, Whether or not to invest
funds when the initial other businesses in the business, primary
investment of owners is planning to invest concern is the ability of
exhausted; invest the business to provide
resources in the acceptable returns
business hoping to earn
decent returns
Government (E) An external user whose Different government Oversees business
primary role is to agencies, taxing operations with the end
regulate businesses; authorities, government goal of improving the
studies financial officials economy; checks the
statements to determine accuracy of the financial
amount of taxes statements to compute
payable for the correct amount of
taxes payable
Academe (E) Uses accounting Professors, lecturers, Uses accounting
information primarily for students, and information in the
academic purposes researchers teaching of accuracy;
researches loopholes and
possible improvements in
the field of accountancy
 General Public (E) 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
Management (I) Employees that can
make decisions for the
company; considered
the brain of the
company.
Employees (I) Persons in the company
aside from managers
and owners or
stockholders; do not
have authority to
implement decisions
Owners or Stockholders Existing investors of the
(I) company; concerned
mostly with the profits of
the company
Common people not Concerned with the
connected with the overall performance of
company the economy; use
financial information to
estimate economic
performance
Board of directors, top Uses financial information
management, middle- in making business
level managers, decisions; allows
supervisors management to identify
problems immediately
and to respond
accordingly
Laborers, field workers, Check if the business is
non-managerial profitable enough to
employees provide compensation
and other benefits
Founders of the Mainly concerned with
company, owners, the returns earned from
stockholders, partners, their investment; owners
and proprietors taking active roles in the
operations of the
business; also make
decisions.

Note: If you have some spare time, kindly watch the video link below for additional information.
Forms of Business Organization: https://www.youtube.com/watch?v=bC_m2hlKA7I

V. APPLICATION

Directions. Choose a partner and apply what you have learned in this lesson by doing a brainstorming.
Write your answer in a sheet of paper.

A. Write TRUE if the statement is correct or FALSE if the statement is incorrect. Underline the word/s that
makes the statement incorrect and write the correct word/s to make the statement true.

__________1. The customers are the lifeblood of the business because they are the source of revenues.
__________2. One of the short term goals of owners is that maximization of wealth.
__________3. Internal users make actions and decisions pertaining to the internal activities of the
business.
__________4. Investors analyzes the viability and profitability of their investment in their business and
determines any future course of action whether to close it or not.
__________5. External users are business enterprises or individuals who have interests in the business
but do not directly involved themselves in the daily activities of the organization.
__________6. The employees play important part in the decision making of the business.
__________7. An example of external user is the owner.
__________8. Examples of internal users of accounting are customers, creditors, investors, government.
__________9. The role for determining the credit worthiness of the organization is with the customers.
__________10. Management analyzes the organization’s performance and position and taking appropriate
measures to improve the company results.
B. The following are some specific examples of users of accounting information. Identify the following
whether an INTERNAL or EXTERNAL user. Justify your final answer.

___________1. Financial institutions ___________11. Chief executive officer

___________2. Investment houses
___________3. Sales manager
___________4. Comptroller
___________5. University of Sto. Tomas
___________6. Banco de Oro
___________7. SGV Auditing Firm
___________8. Financial consultant
___________9. Payroll assistant
___________10. Insurance broker
___________12. Procter and Gamble Phils.
___________13. Cayetano Law Office
___________14. Office secretary
___________15. Accounting supervisor
___________16. Board of Accountancy
___________17. Corporate lawyer
___________18. Sales consultant
___________19. Bookkeeper
___________20. Factory worker

C. Choose the best answer.

1. Which among the following is NOT considered an internal user?

A. Owners of a business C. Suppliers
B. Senior partners of an audit firm D. Field worker
2. Which of the following is NOT considered an external user?
A. BIR officials C. Customers
B. Production supervisor D. A student of accountancy
3. Which of the following does NOT fall under the category of customer?
A. Daniel, a client of SGV auditing firm. C. Banjo, a regular purchaser of deodorant.
C. Jerome, a loyal gamer in X Computer Shop. D. Ryan, an individual collecting payments.
4. What is most likely to happen when companies are experiencing financial difficulties?
A. Investor will postpone or cancel their investments.
B. Employees are motivated to work to achieve the company’s goal.
C. Creditors will be more willing to lend to help overcome its financial difficulties.
D. Researcher will lose interest in the company since they mostly study successful companies.
5. Creditors differ from potential investors in what aspect?
A. Creditors are wary of the riskiness of a company.
B. Wealthy individuals can only invest not to lend to a company.
C. Creditors received fixed amount of fee in their loans to the business.
D. Creditors are exposed to more risks than investors.
6. Which of the following is false about the owners of a business?
A. Owners of a business are concerned with the profit levels of the company.
B. Owners of a business are not allowed to take managerial roles in the company.
C. Some owners do not participate in the management of the business.
D. Owners of a business can also be creditors of the company.
7. Which of the following statements about external users of accounting information is correct?
A. External users include the employees.
B. External users do not have the capability to acquire information directly from the company.
C. The needs of the external users are always prioritized over those of internal users.
D. External users are not concerned most important for borrowings of a company.
8. Customers look at a company’s financial statements.
A. To see if it will be beneficial to build a long-term relationship with the company.
B. To help members of the academe to gather data for educational purposes.
C. To decide whether or not they will lend resources to the company.
D. To estimate the potential returns if he or she plans to transact with the company.
9. What is the difference between the academe and the government?
A. The academe is an internal user of while the government is an external user.
B. The academe is an external user while the government is an internal user.
C. The academe uses accounting information for educational purposes while the government uses
it to gauge the riskiness of the business.
 D. The academe uses accounting information for educational purposes while the government uses
it in the performance of its regulatory function.

10. All of the following describe investors, EXCEPT

A. Money is the most common form of investment of investors.
B. Investors expect to receive their investment back after a specified period of time.
C. Investors can devote resources to start-up companies, but they will be subject to higher risks.
D. The government can be an investor in a business.

VI. REFERENCES

Fundamentals of Accountancy, Business and Management 1 by Joselito G. Florendo

Fundamentals of Accountancy, Business and Management 1 by Dr. Marife Agustin-Acierto and Benjamin
A. Abarquez Jr.