Who are the internal and external users of accounting or financial information? In this article, this will be pinpointed. These users seek certain types of information. Some went to know about profitability, others need to know if the firm can pay up debts as it falls due. All of these will be examined in the course of the study.
Meaning of users of accounting information
This refers to individuals, organizations, and governments that require certain types of information from a firm’s accounting or financial information system.
Furthermore, in the definition of accounting, it was well stated that the information provided by a firm’s accounting system is required by users to make informed economic decisions. This set of users are classified into internal and external users. In this lesson, the meaning of internal and external users will be discussed.
Internal Users of accounting information
These are users whose decisions can be influenced or affected or controlled by the firm. The decision of these users, may not have much effect on the business.
For example, if an employee, decided to leave the business, the business will not be affected to a great extent. With less time period, it can replace such employees. Also, it may decide not to allow the employee to leave the business. This it will do by probably increasing the salary of such employee or provide other motivational packages.
The four major users of accounting information are Owners or shareholders, Management, Directors, and employees.
External Users of Accounting Information
External users are users, decisions of which cannot be controlled, influenced, or affected by the actions of the business. The actions of any of the external users have a great impact on the firm. It can bring the firm economic life to an end.
For example, if a firm fails to pay tax. This may lead to a huge fine from the tax authority. The end result is either the firm liquidates if it can’t pay such tax or hustle its way to pay it up.
Examples of users under this category are banks, suppliers, customers, financial analysts, investors, venture capitalists, media, government, and the general public.
Next, the types of internal users and their information needs will be discussed.