Financial statements used by external entities are prepared using generally accepted accounting principles, or GAAP. The points are clear and easy to understand. Normally the users of accounting information will include the following: Internal Users. 0000041336 00000 n 0000004525 00000 n Government agencies use financial information of businesses for the purpose of imposing taxes and regulations. Captcha* Click on image to update the captcha. ��Y_����gZ�\QF�}��@�. The branch dealing with internal users is called management accounting. There are so many people using the accounting information for so many diverse purposes, thus, the purpose of financial statements is to cater for the needs of the users that could lead them to make better financial decisions. They are outlined herein: At the outset, the first phase is meant to record the economic events or transactions -depending upon their occurrences, chronologically in the books of accounts - called journal. 2. One of the major roles of management is to set rules and procedures to achieve organizational goals. 1. See our, Fareed Siddiqui, BBA, MBA-Fin, MPhil-Fin, (PhD), A Brief Presentation of my Software Modules, Benefits of Endorsing and being Endorsed for…. Investors – They may be current investors, minority stakeholder, potential future investors, etc. 1. They show the company’s ability to cover their long- and short-term debt, their profit or losses and their ability to meet their monthly cash needs. They may be producers, manufacturers, retailers, etc. Employees are an example of internal users. What is the Difference Between Financial Accounting and Management Accounting? I understood it well, What is the reference of the above points, That so great the note is very simple to understand.Thanks. 3. endstream endobj 98 0 obj<> endobj 100 0 obj<>/Font<>>>/DA(/Helv 0 Tf 0 g )>> endobj 101 0 obj<> endobj 102 0 obj<>/ProcSet[/PDF/Text]/ExtGState<>>> endobj 103 0 obj<> endobj 104 0 obj<> endobj 105 0 obj<> endobj 106 0 obj<> endobj 107 0 obj<> endobj 108 0 obj<> endobj 109 0 obj<> endobj 110 0 obj<> endobj 111 0 obj<> endobj 112 0 obj<> endobj 113 0 obj<> endobj 114 0 obj<> endobj 115 0 obj<> endobj 116 0 obj<>stream They need accurate financial information to know what they have earned or lost during a particular period of time. What is a Liability, Examples, Types, its Placement, etc? Related Topic – What is the Accounting Equation? Thank you!! Employees who do not have a hand in core management of the business are considered external users of accounting information. Show your love for us by sharing our contents. 1. Setting up a credit limit & payment terms with their customers. Want to re-attempt? Accounting is an information system that measures, processes, and communicates financial According to American accounting association, accounting has been defined as, “The process of identifying, measuring, and communicating information to permit judgment and decision by the users.”, Another definition of American Institute of Certified Public Accountants (AICPA) is that “Accounting is the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of financial character and interpreting the results thereof.”. Banks or lending institutions may use accounting information to guide decisions such as whether to lend or how much to lend a business; Investors will also use accounting information to guide investment decisions; General-purpose financial statements provide much of the information needed by external users of financial accounting. What is the Difference Between Bookkeeping and Accounting. 0000000816 00000 n Management – Organization’s internal management includes all junior and senior business managers. 0000001675 00000 n They are essentially on the company’s payroll. Following are the secondary users of accounting information: 1. They need accounting information to assess the financial performance and position and to have a reasonable assurance that the business to whom they are going to lend money would be able to return the principal amount as well as pay interest there on. ull-time & part-time workers. Other examples There are other external users for example; labor unions, customers and consumers, suppliers, SEC, tax authority, chamber of commerce, press, competitors, auditors, etc. along with various statutory and tax departments. Qualitative characteristics of accounting information such as identifying, measuring, recording and classifying financial transactions help businesses with decision making, analysis, target setting, budgeting, pricing, forecasts, etc. Tax department as one of the users of accounting information assures accurate tax calculation by the companies. Assessing the financial position of its suppliers which is essential to maintain a stable source of supply.

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