In: Accounting
Who uses acounting information?
Financial accounting information
Financial accounting is important because it provides an organization's stakeholders with business statements, allowing them to know if the organization is making or losing money. This information is essential in determining if a company is able to maintain profitability or not. The overriding purpose of financial accounting is to summarize financial activity in business in the profit and loss statement, balance sheet and cash flow statement. Accounting records and bookkeeping are the basis of business’s financial accounting. Where systems and processes are of sound nature and contain adequate controls, the reliability of business’s financial accounts increases.
Users of financial accounitng are External Stakeholders.Examples of External stakeholders are Suppliers, Customers, Creditors, Clients, Intermediaries, Competitors, Society, and Government etc.
Interested parties such as regulators, customers, investors and creditors usually depend upon this financial information. Financial reports are a necessary tool used by bankers to see how a company functions and stands financially. Financial institutions (banks and other lending companies) require them to decide whether to grant a company working capital or extend debt securities (such as long-term bank loans or debentures) to finance expansion and other significant expenditures.
Managerial accounting information
Management accounting plays an important role in measuring performance and efficiency of the management of the company. Corrective measures are taken based on the same in order to improve the performance of the company. Management Accounting helps in assessment of risk so that risk can be minimized. It helps in proper allocation of resources.
Users of management accounitng are Internal Stakeholders.Examples of internal stakeholders are Managers, Employees, Management etc.