A large number of people, entities, and stakeholders have an interest in the financial well-being of businesses. A list is given below of some of the users of the information provided by accounting

These users can be categorized under external and internal users. This is shown in the diagram below.

Chart of Users of Accounting Information System

Internal Users of Accounting Information

1. Owners

Owners are the people who provide capital for the business. They need information about the financial performance and position of the business. For this reason, they use accounting information to look into the financial affairs of the business.

2. Management

Management is responsible for taking work from others in the most appropriate way. Management needs accounting information to check the efforts of subordinates, ensuring that those who are working hard are properly motivated.

The owners and managers of businesses use accounting information for the following purposes:

  • To understand the financial health of their business units
  • To set organizational goals
  • To evaluate progress toward organizational goals
  • To take corrective action where needed

Decisions that are based on accounting information are more likely to be correct compared to those based on pure intuition.

3. Employees

Employees are the people who serve in the business. Employees are interested in accounting information because their salary appraisals, bonuses, and other monetary and non-monetary benefits are attached to the company’s financial position.

4. Individuals

Individuals make use of accounting information in the day-to-day affairs of managing their cash and bank balances, making investments, or deciding on whether to buy or lease a car or home.

External Users of Accounting Information

1. Investors

Investors are the people who are ready to invest their money in a business. Investors who are looking for business opportunities can only make correct decisions based on high-quality accounting information.

An investor is interested in knowing about the financial position of the business. This kind of information is supplied in financial statements. Accounting information shows the future potential of the business in terms of future profits for investors.

2. Creditors

Creditors give loans to businesses. Creditors use accounting information to evaluate creditworthiness and other factors since this helps to guarantee that the loan will be repaid in the future.

Accounting information also helps creditors to make decisions about whether to offer loans to a business in the future.

3. Government Agencies

Government agencies such as CBR and the Income Tax Department need accounting information from businesses in order to levy tax effectively and accurately.

Without accounting information, these agencies may miscalculate the revenues generated for the government.

4. Customers

Customers are divided into four categories:

  • Producers
  • Wholesalers
  • Retailers
  • Final consumers

Producers must have assurance about the continuous supply of materials needed to make products. Similarly, wholesalers, retailers, and final consumers are interested in the fluent supply of materials.

For example, if any party (e.g., a wholesaler) believes that a product may be unavailable in the future, they will shift their choice to another product. To help make all these decisions effectively, accounting information is necessary.

5. Public

The public is interested in accounting information because this informs them about the financial health of individual businesses. In turn, it is possible to determine the overall impact on the country’s economy.

6. Non-Profit Organizations

Even non-profit making organizations, including clubs, non-governmental organizations (NGOs), and welfare societies, require accounting information to manage their affairs properly.

In the absence of proper accounting records, non-profit organizations cannot satisfy their members and other stakeholders regarding the ways in which their financial affairs are conducted.

Frequently Asked Questions

What are the main users of accounting information?

The main users of accounting information are listed above.

How can accountants help in making better-informed decisions?

Accountants use their knowledge and training to provide relevant, accurate, detailed, and timely accounting information that is useful for many types of decision-making. For example, an accountant can advise a business about the appropriate level of inventories to carry to avoid losses resulting from overstocking or under-stocking.

Is it expensive for a business to acquire accounting information?

No, accounting information is not expensive. It is available free of cost from the capital market board (cmb).

How can accountants help in carrying out regulatory functions?

Accountants provide information that helps government departments conduct their watchdog functions over business units. For example, it is the responsibility of the income tax department to monitor and audit tax compliance. Accountants provide relevant financial information to help the department carry out its work efficiently and effectively.

How can accountants help in preventing and detecting corruption?

Accountants provide relevant accounting information to the public, which enables them to identify financial irregularities and therefore prevent and detect corruption.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.