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Users of Accounting Information/ Internal/ External

Accounting involves the process of identifying, recording and communicating the economic events to the interested users.
Now, who are these interested users of accounting?
Users of Accounting Information are divided into two groups: Internal and External.


Internal Users of Accounting

Internal  users of accounting information are the owners, managers who plan, organise and run the business.Following are the types of internal users:

Owners

Owners need to asses the overall performance of their business and to do so, financial statements are used.
Owners use information from financial statements to estimate the profitability, losses and the risk factor of the overall business.

Managers

Managers use the accounting information for the purpose of planning, monitoring and decision making in business.
Manager through accounting information, decides how much finance is to be used in the production process and allocates the finance among various resources.
Manager uses the data for the budgeting process of the business.
The accounting information of a company over the years provides the manager, with a comparable data to clearly notice the overall growth of the business and therefore take the measurable steps to improve further.

Employees


A business requires various departments for the proper management of the business. And it's the employees that fill these departments.
Employees in the marketing department will be able to make better decisions about the products offered and prices to charge.
Employees in the financial department needs to decide about debt and equity financing.
The employees in the production department will make better decisions about when to buy new equipment and how much to produce.
The HR department will be able to determine whether employees can be given a raise or not.
And as a result, all employees are better informed.

External Users of Accounting

External users are individuals and organisation outside a company who want the financial information about the company.Following are the various types of external users:

Investors

Investors needs accounting information to assess the profitability, valuation and risk of their investment in the company.
Investors use accounting information to decide whether to buy, hold or sell ownership shares of a company.

Creditors

Creditors(or lenders) use accounting information to check the credit worthiness of the company.
They rely upon the accounting information to determine the ability of the company to repay the credit. The accounting information allows creditors to evaluate the risk of granting credit or lending money to the company.

Suppliers

Suppliers, just like creditors, use accounting information to evaluate the risk of granting goods and services on credit to the company and company's ability to repay.

Others

Taxing authorities such as Internal Revenue Service,whether company complies with tax laws.
Regulatory agencies such as Securities and Exchange Commission or the Federal Trade Commission want to know whether the company is operating with prescribed rules.

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