Accounting information is used by two types of users: external users & internal users. This can be explained with the help of the following diagram:
Internal users of the accounting information
Owners are those persons who provide capital for the business. They need information about the financial performance & position of the business. So they use accounting information to look into the financial affairs of the business.
Management is responsible to take work from others in the most appropriate way. Management needs accounting informåtion to check the efforts of their subordinates so that those who are working hard should be encouraged.
Employees are those persons who are serving in business. Employees are interested in accounting information because their salary appraisal, bonus & other monetary benefits are attached to the financial position of the business.
External users of the accounting information
Investors are those persons who are ready to invest their money in business. An investor is interested in knowing about the financial position of the business which can be viewed through financial statements. Accounting information shows the potential capability of the business to earn profits in the future to the investors.
Creditors are those who give a loan to the business. They are interested in accounting information as
they need the guarantee that their loan will be repaid in the future. Accounting information also helps
them to think about giving loans to the business in the future.
3. Government Agencies
Government agencies like CBR, Income Tax Department need accounting information of a business to levy tax on it. Without accounting information, these agencies can miscalculate the revenues being generated for the government.
Customers can be divided into four categories: producers, wholesalers, retailers & final consumers. Producers must be assured about the material they need to make a product, from the particular concern. Similarly, wholesaler & retailers should also have assurance about the continuous supply of material. Finally, the consumer is also interested in the fluent supply of material. If he thinks that the product may not be available in future, he will shift his choice to another product. In making all these decisions accounting information is necessary.
The public is interested in accounting information because they can know about the financial health of
the individual business and then overall impact on the country’s economy.