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Users of Accounting Information

Tuesday, May 22nd, 2012

Users of Accounting Information for making informed accounting decision because an effective and well organized financial report encourage the decision makers to make greater decisions. These financial reports are transferred to the users in two forms-Internal and External. Internal financial reports are used by an individual who runs, manages and operates the daily activities of inside area of an organization. Manager, supervisor, financial director are the most featured examples of internal users and their area of work is referred as managerial accounting.

Management accounting generally deals with the information which is needed for organizing, planning and directing the internal task of an organization. Management accounting provides detail information of internal financial report to the internal users to make decisions for their company. This information is not available to the outsiders. For example, management accounting of ABC Company focuses on the information regarding the producing cost of any item, the number of product they need to produce, the way to produce the product etc. After having all these detail information, the management accounting of ABC Company will make informed decision.

External financial reports are used by individuals and organizations who want financial accounting information. External users are not the part of management of the company but they are interested to have financial accounting information about the company. External users get this accounting information through balance sheet, income statement and cash flow statement. There are many external users but investors and creditors are most common of them:

Creditors: Creditors (Lenders) are generally focused on those information which are related to the borrower before making a large loan such as the Bank (creditors) will want information about the borrower regarding some criteria: the ability of the borrower to repay the loan, the amount of assets and liabilities of the borrower, evidence of income, tax policies and so on. The creditors will make the loan after having this detail information through financial accounting statement of the borrower.
Investors: Investors generally provide money to individual or organization to start a business. Before investing money investors generally want to know whether they should invest or not or if they would invest to start a business now then how much return they will get from their investment. The investors will decide based on the financial accounting information of that business.

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