External Users of Accounting Information

There are various parties or users who are interested in the business of an enterprise and require accounting information. These users can be bifurcated into two categories as Internal Users and External Users.


External Users


External users are those that are outsiders to a corporation and have an interest in the financial affairs of the business. These users don’t have direct access to the financial statements of the business. The following parties come under the top of external users.

Banks and Financial Institutions: Banks provide finance to varied businesses within the sort of loans and advances. Thus, they have information regarding liquidity, creditworthiness, solvency, and profitability to advance loans. The accounting information revealed through the financial statements of business enable them to have access over such information.

Investors and Potential Investors: These are the parties who have invested or are planning to invest in the business of an enterprise. They are interested in knowing the safety of their investment in the business and the regularity of returns on their investments. Hence, so as to assess the viability and prospects of their investments, they have information about the profitability and solvency position of the business.

Creditors: These are the parties to whom a business owes money on account of credit purchases of goods and services. Hence, creditors require accounting information to enquire about the creditworthiness and liquidity position of the business.

Tax Authorities: They need accounting information to know whether the number of sales, production, profits, revenues, etc. are correctly calculated and shown unambiguously within the books. This is vital in order that appropriate and proper tax rates (of taxes like nuisance tax, excise duty, etc.) are levied on the business.

Government: Government requires information to determine various macroeconomic variables such as national income, GDP, industrial growth, etc. The accounting information assists the govt within the formulation of varied policy measures and to deal with various economic problems like unemployment, poverty, etc.

Consumers: Every business attempts to build up a reputation in the eyes of consumers, which can be created only by supplying better quality products and post-sale services at reasonable and affordable prices. Businesses that have transparent financial records, assist the customers in knowing the correct cost of production and accordingly assess the degree of reasonability of the price charged by the business for its products. Thus, unambiguous and transparent financial statements help in building a business reputation.

Researchers: Many research organizations like NGOs and other independent research institutions like CRISIL, stock exchanges, etc. undertake a number of research projects. The accounting information eases their research work.

Public: The public is keenly interested in knowing the proportion of profit that the business spends on various public welfare schemes; for example, making charities, funding schools, etc. This information is revealed by the financial statements of a business.


Also, Read Bookkeeping

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