User of Financial Statement
Accounting is the information system that identifies, records, and communicates the economic events to interested User of Financial Statement in an organization or outside. Accounting information is needed by two sets of parties, which are:
- Internal Users
- External Users
Internal users are associated with management of the organization. The external users consist of several explicit groups, which are outside the organization and has interest (financial and non-financial) in an organization.
Internal Users of accounting are parties who have directly connected with a company. Internal users require Financial Statement to make important business decisions that affect its continued operations. Financial analysis is then performed on these statements to provide management with a more detailed understanding of the figures. Financial accounting as well as management accounting use for internal purpose.
External Users of accounting are potential investors, customers, banks, government agencies and other parties who are outside the business but need financial information about the business for a diverse number of reasons.
- Prospective investors make use of financial statements to assess the viability of investing in a business.
- Government entities (Tax Authorities) need financial statements to ascertain the accuracy of taxes and other duties declared and paid by a company.
- Financial institutions (banks and other lending companies) use financial information to decide whether to grant a company with fresh working capital or extend debt securities (such as a long-term bank loan or debenture) to finance expansion and other significant expenditures.
>> Read Types of Accounting.