Internal and external users of financial information

Internal and External Users of accounting information

Section 1 Objective 2

Internal and External Users of Accounting

Accounting called the language of a business communicates accounting information to help many types of users.The information that a user of financial information needs depends upon the types of decisions to be made.

Internal and External Users of accounting information

Users of accounting information are divided into two main groups of users:

• External• Internal

External users–are users who are not directly involved in the running of an organisation

– have limited access to a firm’s accounting information

– depend on reliable, relevant and comparable accounting information to make important decisions

External Users and need for accounting information are

– Creditors/Lenders• To assess whether the business can pay for its

goods on credit or repay its loans.– Stockholders/Owners

• To decide whether to buy, hold or sell shares– Vendors/Customers

• To assess the staying power of potential suppliers and customers

– Government agencies• To calculate the amount of taxes to be paid.

Internal Users– are users who are directly involved in the

planning, organising, and running the business.

– use the information to help improve the performance and profitability of the organisation.

Internal and External Users of Accounting

Internal Users and need for

accounting information are:

– Employees• Need to get better wages and working conditions

– Purchasing managers• need to know what, when, and how much to purchase

– Human resource managers• need information about employees’ payroll, benefits,

performance and compensation– Production managers– Employees

• depend on information to monitor costs and ensure quality

Have a look at the video by Carmen Beatriz

Accounting - Users of Financial Information - YouTube

https://www.youtube.com/watch?v=h9sSFTV6MtQ