Who Uses Accounting Data

The information that a user of financial information needs depends upon

the kinds of decisions the user makes.There are two broad groups of users

of financial information: internal users and external users.

 

INTERNAL USERS

Internal users of accounting information are those individuals inside a company

who plan, organize, and run the business. These include marketing managers, production

supervisors, finance directors, and company officers.

Managerial accounting
provides internal reports to help users

make decisions about their companies. Examples are financial comparisons of operating

alternatives, projections of income from new sales campaigns, and forecasts

of cash needs for the next year.

EXTERNAL USERS

 

External users are individuals and organizations outside a company who want financial

information about the company. The two most common types of external

users are investors and creditors. Investors (owners) use accounting information to

make decisions to buy, hold, or sell ownership shares of a company. Creditors (such

as suppliers and bankers) use accounting information to evaluate the risks of

granting credit or lending money.

Financial accounting
answers these questions. It provides economic and financial

information for investors, creditors, and other external users. The information

needs of external users vary considerably. Taxing authorities (such as the Internal

Revenue Service) want to know whether the company complies with tax laws.

Regulatory agencies, such as the Securities and Exchange Commission and the

Federal Trade Commission, want to know whether the company is operating within

prescribed rules. Customers are interested in whether a company like General

Motors will continue to honor product warranties and support its product lines.

Labor unions such as the Major League Baseball Players Association want to know

whether the owners can pay increased wages and benefits.