Question

Who uses accounting information and for what do they use it?

Outside of the company, who might have an interest in a company’s financial situation? Why do you think this - justify your answer.

Answer 1

Users of accounting

Investors: They provide risk capital to the business. They need information to assess whether to buy,
hold or sell their investment. Also they are interested to know the ability of the business to survive,prosper and to pay dividend. In non-corporate sector, where ownership and management are not essentially separated, the owners still need information about performance of the business and its nancial position to decide whether to continue or shut down.

Employees: Growth of the employees is directly related to the growth of the organisation and therefore, they are interested to know the stability, continuity and growth of the enterprise and its ability to provide remuneration, retirement and other benets and to enhance employment opportunities.

Management : Management as whole is also interested in the accounts for various managerial
decisions. On the basis of the accounts, management determines the eects of their various decisions on the functioning of the organisation. This helps them to make further managerial decisions.

Users Outside the organization

Lenders: They are interested to know whether their loan-principal and interest will be paid when due.

Suppliers and Creditors: They are also interested to know the ability of the enterprise to pay their
dues, that helps them to decide the credit policy for the relevant concern, rates to be charged and
so on. Sometimes, they also become interested in long-term continuation of the enterprise if their
existence becomes dependent on the survival of that business. Suppose, small ancillary units supply
their products to a big enterprise, if the big enterprise collapses, the fate of the small units also becomes
sealed.

Customers: Customers are also concerned with the stability and protability of the enterprise because
their functioning is more or less dependent on the supply of goods, suppose, a company produces
some chemicals used by pharmaceutical companies and supplies chemicals on three month’s credit. If
all of a sudden it faces some trouble and is unable to supply the chemical, the customers will also be in
trouble.

Government and their agencies: They regulate the functioning of business enterprises for public
good, allocate scarce resources among competing enterprises, control prices, charge excise duties and taxes, and so they have continued interest in the business enterprise.

Public: The public at large is interested in the functioning of the enterprise because it may make a substantial contribution to the local economy in many ways including the number of people employed and their patronage to local suppliers.

All of the above users need proper accounting information time to time in order to make decisions.