INTERNAL AND EXTERNAL USER OF FINANCIAL ACCOUNTING

INTERNAL AND EXTERNAL USERS OF FINANCIAL ACCOUNTING.

v  INTRODUCTION

v  DEFINITION OF USERS

v  INTERNAL USERS OF FINANCIAL ACCOUNTING

v  EXTERNAL USERS OF FINANCIAL ACCOUNTING

v  SUMMARY

Ø Introduction.

As discussed earlier in the “Simple breakdown of Financial Accounting” we see that Accounting is used to give report to its users. When we talk about Financial Accounting and its uses we mean the detail of an Organization's Asset and Liabilities which helps the users in making decision.

Ø Definition of users.

Users of Financial Accounting are those that need the analysis of Financial Accounting to know the performance of an organization in order to determine how well an organization is functioning and to predict the future performance of such organization to meet necessary obligations. The users are those that are engaged in the activity of an organization such as Managers, Workers etc. also financing of such organization such as banks, shareholders, creditors etc. In order to understand each class, the users will be grouped base on their relevancy to the organization.

Ø Internal users of Financial Accounting.

Internal users are those that are operating and also engaged in financing the business internally. Such as;

·   Management: These are those that are engaged in Managing the daily activities of the business, they ensure everything is in order, they run the business on behalf of the owner.

They need accounting information to know how effective and efficient their implemented skills have actually worked. I.e. to demining their performance.

·   Employee: These are the workers in an organization both skilled and unskilled.

They need accounting information to know how secured their job is, i.e. the ability of the business to pay their remuneration.

·   Shareholders: They finance the business by buying share from the company for rewards know as “Dividend”. They need accounting information to know what the organization own i.e. The Asset and what it owes i.e. The Liability, They are also interested in the profit of the business so as to get assured of getting Dividend back on investment.

Ø  External users of Financial Accounting.

External users are those that are engaged in financing the business externally.

Such as:

·   Creditors: These are customers that sell goods on credit to the organization.

They need accounting information to know if the company will be able to pay their debt on maturity

·   Banks/Lenders: This is a financial institution that provides loan to the organization.

They need financial statement of the business to know the liquidity, profitability, reliability of underlying asset to know if loan should be granted to the organization and its capability to pay back on maturity.

·   Competitors: They make use of accounting information in order for them to fix their own prices and determining their position in the market.

·   Analysts: They need accounting information to help investors to evaluate and choose the right investment.

·   Tax Authority: They need accounting information to know the profitability of the business in order to tax the organization.

·   Government: They need accounting information to keep the statistics of the economic development to ascertain the growth rate of an economy.

·   Politicians: Politicians who are presenting manifestos with a view of winning an election usually make use of accounting data.


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