Users of Accounting

Information
Learning Objectives
The learners shall be able to:
• define external users and give examples
• define internal users and give examples
• identify the type of decisions made by
each group of users
• describe the type of information needed
by each group of users
What business you
would want to enter
into.
If you are the owner,
what do you want to
know about the
business?
How much income have I earned for
a certain period?
How much receivables do I have?
How much do I owe my suppliers?
How much is the value of my inventory?
What possible decisions can accounting support?”
Will I be able to pay my liabilities if I earn this much
Can I expand my business
Will I be able to afford buying new equipment
Do I need to adjust my selling price
Do I need to cut cost
“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?
Who uses accounting data or 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.
 Give examples of internal users.
Management
What information will that user need that can
“

be answered by accounting?
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 employee.
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 decisions of 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
1. Securities and Exchange Commission (SEC
2. Bureau of Internal Revenue (BIR)tax authorities
3. Department of Labor and Employment (DOLE)
4. Social Security System (SSS)
5. Local Government Units (LGU
What are the possible answers on information
provided by Accounting:
 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
Possible answers on the decisions of external users that are supported by accounting

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?
SUMMARY OF THE DIFFERENCES BETWEEN
INTERNAL AND EXTERNAL USERS

Internal users of accounting information are those

who are involved in planning, organizing and
running the business. They need more detailed
information on a timely basis in order to support
their decisions. Examples of these internal users
are managers, employees and owners.
The external users of accounting
information are those individuals or
organizations outside a company who
are interested in its financial
information. Examples of these
external users are potential investors,
suppliers and government agencies.
Is the Local Government Unit (LGU)
interested in your accounting reports?
Yes.
The LGU will check whether you are paying your
local taxes. As required, businesses must have a
business permit before they are allowed to operate
in the city or municipality. This is renewed every
year, with appropriate taxes paid. The local
government may review your accounting records
to check whether you are declaring or paying the
correct taxes.
EVALUATION (5 MINUTES)
Give at least 3 internal users of
accounting information.
Give at least 3 external users of
accounting information. Differentiate
internal users from external users of
accounting information.