Accounting Information and Its Use

What is Accounting Information?

Accounting is known as an information system. Accounting provide the necessary information to the interested users. Thinking about the internal and external users of accounting, reports and records of transactions are kept and statements are published.

Accounting information is the consolidated statement of all financial information of a business organization.

Business transactions are the main source of accounting information. From the business transaction, various accounting statements are prepared and published.

The company’s accounting department prepares and publishes reports of the company’s financial operations.

Different individuals and organizations use accounting information to suit their needs.

Sources of Accounting Information

The following statements could be referred to as the source of accounting information.

  1. Comprehensive Income Statement
  2. Balance Sheet or Financial Position Statement
  3. Owner’s Equity Statement
  4. Cash Flow Statement
  5. Notes and Explanation

Who are the Users of accounting information?

Accounting provides valuable information about the financial condition of a firm. Stakeholders take an important decision based on this information.

So we can divide the users of accounting information into two groups-

Internal users: 

Internal users of accounting information are those who plan, organize and run the business. Internal users include:

  • Owners
  • Manager
  • Internal Auditors
  • Production Supervisor
  • Finance Directors
  • Company officers
  • Line manager
  • Board of Directors
  • Top-Level Officers
  • Treasurer
  • Company Officers
  • Marketing Manager

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External Users: 

External users are individuals and organizations or institutions outside a company that wants financial information about the company. External users Include:

  • Suppliers
  • Banks
  • Customers
  • Investors
  • Potential investors
  • General Public
  • External Auditors
  • Tax Authorities
  • Regulatory Agencies
  • Labor union
  • Researchers
  • Economic Planner
  • Financial Institutions
  • Securities Exchange Commission
  • A prospective Buyer
Accounting Information and Its Use
Users of Accounting Information

How they use Accounting Information?

Internal Users:

Owners:

The main purpose of the business is to make a profit. Owners are keen to know the profit rate on their invested money and the security information of their invested money.

They can get a good idea about this from the accounting information.

Management Authority:

There are different types of financial information needed to manage a business organization. Accounting information helps managers to prepare different types of plans and budgets.

Internal Auditor:

Internal auditors use various accounting information and take an important decision in the organization.

Accounting Department:

The Accounting Department also acts as an important user of accounting information. Based on this information, they make different decisions.

 External Users

 Government:

The government imposes various taxes directly and indirectly on the income, sales, etc. of the organization.

Accounting information helps the government to impose various types of taxes on the income of an organization.

Lenders:

The Business institution relies on lenders to collect additional money. The lenders want to check the financial statements of the company before making a loan.

They use accounting information for making their decision.

Investors:

 Investors thoroughly examine the financial statements of an organization before investing in it, and make investment decisions based on the information of that company.

Why accounting is called the language of business?

Consumers:

Consumers use accounting information to determine if consumer rights are protected. Consumers use this information to determine whether the company is quality and fair.

Researcher:

The financial statement of the institution is the image of the organization. Therefore, researchers use accounting information to help improve the quality of research in various fields.

Chamber of Commerce:

The Chamber of Commerce can find out the financial status of the organization by using accounting information.

The Association uses accounting data to make decisions on various issues of interest. Again, the use of accounting information can be taken to determine the contribution of the merchant association and to collect the contribution.

General Public:

The general public of society uses accounting information to know the financial status of the institution.

The general public uses accounting data to analyze whether business organizations are operating well and whether prices are increasing for inefficient management.

Creditor:

The creditor is created for the purchase of goods. Before deciding whether to sell the product under the creditor, creditors use the accounting information.

External Auditors:

External auditors are advised to disclose the mistakes and frauds of the accounts by properly examining the accounts. The auditor needs accounting information to perform these tasks.

Stock Exchange:

The stock exchange can use accounting information to maintain stability in the capital markets and to know the financial status of any company.

Therefore, the usefulness of accounting information is very important to both internal and external users. All users, however, use accounting information from their location and where they need it.

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