FABM 1
Chapter 3 — Users of Accounting Information
Introduction:
To be successful, businesses must interact with countless customers, investors,
creditors, and other groups. There is no known business that is established just to transact
with itself.
Two types of financial statements:
General purpose financial statements are intended to provide information to those who
do not have the capability to request directly from the company.
Special purpose financial statements are usually produced based on the requests of
parties that have the capability to ask for accounting information directly from the
company.
This distinction resulted in the broad groups of users of financial information: external
users and internal users.
External Users
Customers
are the main source of income of businesses.
Creditors
lend their resources (usually money) to the business in exchange for a fee. The biggest
fear of creditors is that they will not get paid the amount due to them.
Three main factors considered by creditors before lending to a company :
1. Riskiness of lending
2. Profitability of the company
3. Company's amount of borrowings
Potential Investors
Investors may also provide the additional fuel to drive the company forward. Investors
put their resources (usually money) in a business hoping to earn a decent amount of
return. Unlike creditors who are assured to earn the interest and fees, investors may win
or lose in their investment. Investing in a business is a gamble.
Government
Regulates the businesses in the economy. The government particularly looks at the
income, revenues, and expenses of a company. Revenues and expenses are closely
scanned for taxing purposes.
FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND MANAGEMENT
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Academe
Members of the academe (e.g., professors, researchers, students) benefit from the
accounting information in the financial statements of a company.
Researchers study the financial statements to identify particular trends in a specific
industry or the economy as a whole.
Public
The general public is the last group considered to be an external user.
Financial statements give us hints about the condition of the economy.
Managers often function as the brain of the company.
Employees
Some employees of a business, aside from managers, sometimes take a look at the
company's financial statements. Unlike managers who examine the financial statements to
make better decisions for the benefit of the company, these employees use financial
statements primarily for personal reasons.
Owners or Stockholders
Predominantly, owners or stockholders want to know if their investments will yield
acceptable returns. A profitable business keeps its investors happy. As a result, investors
would not liquidate their ownership.
