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.
Users of Accounting Information #1
Internal Users
These are the users who are internal to an organization. Such users have straight access to the financial statements of a business. The following users are included within the category of internal users.
Owners: These are the persons who make investments in the business. These have an interest in knowing the profit earned or loss incurred during an accounting period. They are curious about assessing the profitability and viability of the capital invested by them within the business. The financial statements developed by the business concerns enable them to have sufficient information to assess the financial status and financial health of the business.
Management: Management is an integral part of an organization. They are nourished in drafting plans, decision-making process, evaluating past performances, etc. The financial statements enable the management not only in drafting policy measures and planning but also inefficient implementation of the plans. With the help of information revealed by the financial statements, management can not only enhance the efficiency of the business but also exercise various cost-controlling measures to remove inefficiencies.
Employees and Workers: They are interested in the timely payment of wages and salaries, bonuses, and appropriate increments in their wages and salaries. With the help of the financial statements they can know the amount of profit earned by the company and can demand a reasonable hike in their wages and salaries. The financial statements also assist them to assess their individual career scope and their growth prospects.
Users of Accounting Information #2
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