The basic objectives of
accounting is to communicating financial information about a business entity to
it’s users on time,such as shareholders, managers, investors, government and
other local bodies etc. Accounting information
basically helps users to make better financial decisions.
All these informations are
collected from properly maintained books of accounts and related documents by way of
preparing some reports such as balance sheet, profit and loss account,
cash flow statement, debtors analysis ,creditors analysis etc.
Users of financial information
can be classified in to two categories such as-;
1)
Internal users
2)
External Users
Internal
users
Internal users are those individuals or
groups who are within the organization or business entity like owners, management,
employees and trade unions etc. They are the primary users of accounting
information.
Now we can discuss in detail regarding
these.
a) Management
The
main duty of management is to take proper business decisions to improve the
efficiency and performance of a business entity. Day to day business operations
of an entity is under the supervision of various levels of management such as
top level, medium level, lower level management etc. Each levels of managers
require separate set of information depend on their level of activity. So as to
generate such information management
will analyze and interpret the accounting information of the entity and
monitor the performance of the entity continuously. In short accounting
information helps managers to take proper decision on proper time.
b) Owners
Ultimately
owners are the investors of the business entity and their interest is to know about
the profitability and financial soundness of their business. They need to know wthether this business is able to generate profit in
future and whether it’s eligible
for the growth potential in
future. Owners are ultimately concern about the return on their investment.
c) Employees and Trade Union
Trade union and employees are always
look in to the financial position of the business entity to ensure the job
security and ask for higher remuneration
and other benefits in future.
Most of the companies declare
their bonus to employees depends on the volume of profit in that year. That
mean if the company having profit and it reached in a targeted level, then that
company will declare bonus to employees.
But sometimes companies not
willing to declare bonus to employees even though they had enough profit,in
such cases trade unions will ask for bonus and other employee’s rights to the management based on the accounting
information of that entity.
External
Users
External users are those individuals or groups
who are outside the organisation like creditors, investors, banks and other
lending institutions, present and potential investors, Government, tax
authorities, regulatory agencies and researchers etc…. They are the secondary
users of Accounting information.
a) Creditors, Banks other Financial institutions
Before supplying goods
to the purchaser, seller required to
verify the credit worthiness of the purchaser. All the credit terms are set by creditors according to the
assessment of their customers' financial health and stability.
Like wise banks and other lending financial institutions,
before granding the loan , required to verify the repaying the capacity of
borrower. So as to verify the financial position of the borrower, banks
required to verify last few years finanacial statements and other related
documents. Moreover most of the bank insisting their borrowers to submit the finanacial statement on
periodical intervals that is say every 6 months, every 3 months or monthly etc.
b) Present Investors
Present
investors need to know the position, progress and prosperity of the business inorder
to ensure the safety of their investment. Investors also considers the rate of
return and payback period of their investments
c) Potential Investors
Potential Investors want to make sure
that they can earn a reasonable return on their investment before they commit
any financial resources to the company. Potential investors also verify the
financial position, growth potential and
future viability of that entity. All these analysis are done based on the
published accounting information and analysist study. Ultimately based on the
accounting information and it’s analysis study, potential investors will decide
whether to invest in the business or not.
d) Government and Tax Authorities
Government and tax
authorities required to know the earnings of the business, inorder to assess
the tax liabilities of that business. So as per laws of the state ,every
company required to submit the income statement and position statement and
other related documents prescribed by the prevailing law to the government
or Tax authorities concerned.
e) Regulatory Agencies
Every
country there is some regulatory
Agencies Which controls the operations
of the business and ensure that all the activities are carried out under the
rules framed for this behalf.
Reserve
bank of india (RBI), Central Board of Direct Taxes(CBDT),Controller and Auditor
General of India (C&AG) etc.. are some of the requlatory agencies in
indian.
f) Researchers
Some
of the researchers also using accounting informations for their research work.
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