In this article, we will discuss the user of accounting information. Firstly, we are going to discuss the internal user of accounting system. But, the external user is also very important and plays an important role in accounting information systems. For gaining better knowledge, you need to read the full article.
I. Internal Users
1. Owners, Shareholders, Partners, and Proprietors
The user of accounting information is the driving force behind any business activity. Their ideas and the funds work for the efficient, convenient flow of business, growth, development, diversification, etc. The factors on priority lists are enhanced turnover, improved profitability, better dividend distribution, financial indicators, growth/expansion of business, better prospects regarding earnings, etc. The sub-category of internal Users is contended with published annual results, like Profit and Account and Balance Sheet and other miscellaneous statements.
The accounting data is useful for all three tiers of a company’s management, Management (Board of Directors), Middle Management (Senior Executives), and Lower Management (Supervisory Staff). The data facilitates in finalization of policy statements at the top management level, implementation of such policies at the middle management tier, and discharge of supervisory functions at the lower management level. Management plays essential information in user of accounting information.
The basic requirement is for sustainable success and growth of a business entity, mutual understanding, and a cordial relationship between the employer and the employee. A company’s management can have a wholesome industrial relationship through highly contended, committed, and motivated employees.
Also Read: Accounting Information System
II. External Users
The details of external users of accounting information viz. customers, investors, regulators, government agencies, creditors/suppliers, researchers, foreigners.
Suppliers of goods or raw materials extend short-term credit to their customers to understand that the entire payment would be made within a stipulated timeframe. Such kind of credit is termed trade credit. Therefore, they need to ascertain their customer’s short-term solvency. The liquidity or short-term solvency of a company can easily be found with the help of accounting statements. The creditors can frame their policy of extending short-term trade credit based on financial data.
2. Prospective Investors
The prospective investor may include, besides individuals, banks, and insurance/finance/mortgage companies. The vital guiding factors behind any investment decision taken by a potential investor that is involved in user of accounting information:
- Safety of funds invested.
- Recurring returns in the form of dividends.
- Possible capital gain.
3. Government Agencies
The accounting information is required by government agencies, like tax authorities, company law board, registrar of companies, securities and exchange board of India, ministry of trade and commerce, etc.
The interest of a customer or normal citizen lies in knowing the factors like monitoring mechanisms prevailing in the company. It regards production, selling, and other expenses, which affect the market price of the finished goods.
Analysis and interpretation of financial statements of a company by researchers may lead to some unexpected. It also gives surprising results and innovative ideas, which different entities may use differently.
Foreigners are interested in a company’s accounting data because of their exposure in joint ventures, foreign direct investments, etc. Further, there is an increasing number of merger and acquisition cases of Indian Companies with Multi-National Companies.
Entrepreneurs, trade associations, stock exchanges, media, political parties, etc., These are some of the other stakeholders keen on the well-being of a business entity and its growth, etc. They also undertake the study of the impact on the economic and social business environment.
Who are the User of Accounting Information System?
There are four primary users of accounting information:
1. Internal users, such as managers and employees. 2. External users, such as creditors, investors, and tax authorities. 3. Financial statement users 4. Management accounting users use accounting information to determine how to run a business.
What are the 3 Main Activities of an Accounting Information System?
The three main activities of an accounting information system are: 1. Collecting and storing data 2. Processing and reporting data 3. Analyzing and decision making