Subject: FABM 1

Topic: USERS OF ACCOUNTING INFORMATION

There are two broad categories of users of financial information: internal and external users.

💡 INTERNAL USERS

Internal users of accounting information are those individuals inside a company who plan, organize, and
run the business. These users are

directly involved in managing and operating the business. These include marketing managers,
production supervisors, finance directors,

company officers and owners

Internal users (Primary Users) of accounting information include the following:

MANAGEMENT

Information need: income/earnings for the period, sales, available cash, production cost

Decisions supported: analyze the organization's performance and position and take appropriate
measures to improve the company

results. sufficiency of cash to pay dividends to stockholders; pricing decisions

EMPLOYEES

Information need: profit for the period, salaries paid to employees

Decisions supported: job security, consider staying in the employ of the company or look for other
employment opportunities

OWNERS

Information need: profit or income for the period, resources or assets of the business, liabilities of the
business

Decisions supported : considerations regarding additional investment, expanding the business,

borrowing funds to support any

expansion plans.

• Accounting information is presented to internal users usually in the form of management accounts,
budgets, forecasts and financial

statements. This information will support whatever decision of the internal users.

💡 EXTERNAL USERS

External users are individuals and organizations outside a company who want financial information
about the company. These users are not

directly involved in managing and operating the business.

The two most common types of external users are potential investors and creditors.

Potential Investors use accounting information to make decisions to buy shares of a company . Creditors
(such as suppliers and bankers) use
accounting information to evaluate the risks of granting credit or lending money. Also included as
external users are government regulatory

agencies such as Securities and Exchange Commission (SEC), Bureau of Internal Revenue (BIR),
Department of Labor and Employment (DOLE),

Social Security System (SSS), and Local Government Units (LGUs).

External users (Secondary Users) of accounting information include the following:

CREDITORS: for determining the credit worthiness of an organization. Terms of credit are set by
creditors according to the assessment of their

customers' financial health. Creditors include suppliers as well as lenders of finance such as banks.

TAX AUTHORITIES (BIR): for determining the credibility of the tax returns filed on behalf of a company.

INVESTORS: for analyzing the feasibility of investing in a company. Investors want to make sure they can
earn a reasonable return on their

investment before they commit any financial resources to a company.

CUSTOMERS: for assessing the financial position of its suppliers which is necessary for them to maintain
a stable source of supply in the long term.

REGULATORY AUTHORITIES (SEC, DOLE): for ensuring that a company's disclosure of accounting
information is in accordance with the rules and

regulations set in order to protect the interests of the stakeholders who rely on such information in
forming their decisions.
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