Accounting is an information system that identifies records and communicates the economic events of an organization to the interested users in form of financial statements. Accounting Information Users can be divided in two forms- internal and external.
This leads to a division of accounting nature- Managerial accounting and Financial accounting.
Internal users of Accounting information
Internal users are those individual who runs, manages and operates the daily activities of inside area of an organization. Owner, directors, managers, officers are the most highlighted examples of internal users of accounting information.
Managerial accounting identifies, measures, analyzes and communicates the financial information needed by management to plan, control, and evaluates a company’s operations for the internal users.
Its goal it to provide necessary information for the management or also can be defined as Internal users.
External users of Accounting information
External users are those individuals who take interest in the account information of an organization but they are not part of the organizations administrative process.
External users have direct or indirect interest in the accounting information.
Financial accounting is the process for preparation of financial reports of the enterprise for use by both internal and external parties.
These reports are important to the external users of accounting information. Creditors and Investors are the most regular example of external users among many other external users.
The external users of accounting are;
Creditors or lenders uses the accounting information to find out the ability of the borrower to repay the loan, the amount of assets and liabilities of the borrower, evidence of income, economic position etc. before he or she lend the money to the economic entity.
Investors are the capital providers of a business. Before investing, an investor sees the financial report for figuring out the possibilities of the business in future. Financial information is important for an investor for making sure that the investment is secure.
Business need business to do business, it is the truth. Associate trading companies looks at the financial information and makes the decision to trade with the particular economic entity.
Government Regulatory Agencies
The financial information is vital for government regulatory agencies as it allows them to monitor the economy and market.
Law makers and economic planners
It is important to keep a nation’s economy structure up-to-date with the global changes. It is a job for the lawmakers and economic planners.
The accounting information provides information that is necessary for making changes of the existing laws at the right moment for the economy and society betterment.
There are other external users for example; labor unions, customers and consumers, suppliers, SEC, tax authority, chamber of commerce, press, competitors, auditors etc.
Anybody out side of the managing radius of an economic entity is interested to the financial information of it, is defined as external user.
For example to that statement; a BBA student looking for financial information of GOOGLE, he or she is the external user of the accounting information of GOOGLE.
The financial reports or information are the result of accounting process that transferred to the users in two forms-internal and external.
These reports used for effective for operating the business by the internal users, on the other hand the external users use the information to get a real picture of the financial state of the organization.