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USERS OF ACCOUNTING

INFORMATION
Learning Objectives
to define external users of accounting
information and give examples
to define internal users of accounting
information and give examples
to identify the types of decisions made by each
group of users
to identify the types of information needed by
each group of users
Recall the definition of accounting
and explain why accounting is
considered as the language of
business.
What business would want to enter
into?
If you are the owner, what do you
want to know about the business?
What possible decisions can
accounting support?
Accounting support
Information needs Decision support

How much income have I Will I be able to pay my


earned for a certain period? liabilities if I earn this much?
How much receivables do I Can I expand my business?
have? Will I be able to afford buying
How much do I owe my new equipment?
suppliers? Do I need to adjust my selling
How much is the value of my price?
inventory? Do I need to cut costs?
What if you are from a Local
Government Unit (City/Municipality)?
Do you think the Local Government
(City/Municipality) will be interested
with your accounting reports/records?
Importance of Accounting Information
Accounting information helps users to make
better financial decisions. Users of financial
information may be both internal and external
to the organization.
Users of Accounting Information

1 Internal

2 External
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.
Example
marketing managers, production supervisors,
finance directors, company officers and owners
Give examples of internal users.
What information will that user
need that can be answered by
accounting?
Management
Information need:

Decisions supported:
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:

Decisions supported:
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:

Decisions supported:
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.
External Users
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)
Creditors
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)
Tax Authorities (BIR)
for determining the credibility of the tax
returns filed on behalf of a company
Investors
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
Regulatory Authorities (SEC, DOLE)
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
Give examples of external users.
What information will that user
need that can be answered by
accounting?
Example of External Users
potential investors
banks
suppliers
BIR
DOLE
Information provided:
Income or profit of the business
resources or assets of the business
liabilities or amount owed by the business to its
suppliers
taxes paid by the business
salaries and other benefits paid to employees
Decision ssupported:
Potential Investors Is it profitable for me to
invest in this business?
Banks If extend a loan to this company, will it
be able to pay this loan? Does this company
have sufficient resources to pay its loan?
Suppliers Do I extend credit to this company?
For how long?
BIR Is the owner paying the correct taxes?
DOLE Are the employees paid according to
what the law states? Do they get the benefits
required?
Activity: Act out internal and
external users of accounting
information. You are given five to
ten minutes to meet and prepare
for the presentation. Each group
should be able to present the
information needs of the different
users and relate these information
to their decision-making process.
Activity: Identification - external or
internal user.
1. Labor union of a company.
2. Board of directors of a manufacturing company.
3. Bureau of Internal Revenue.
4. Securities and Exchange Commission.
5. Credit investigator.
6. President of a corporation.
7. Prospective supplier.
8. Prospective overseas customer.
9. Budget officer of an economic zone enterprise.
10. Member of company management review team.