Name: ________________________________________________________ Date:
Grade/Track/Section: ____________________________________________ Room No.: ________________
ACTIVITY NUMBER :3
SUBJECT : Fundamentals of Accountancy, Business and Management 1
TOPIC : Users of Accounting Information
LEARNING TARGET : The learners demonstrate an understanding of the external and internal users of
financial information.
REFERENCES : ABM Part 1 Module for Grade 11
ABM in Context Learning Module for Grade 11
TYPE OF ACTIVITY : Concept Notes
CONCEPT NOTES:
“Who uses accounting data or information?”
There are two broad categories of users of financial information: internal and external users.
INTERNAL USERS
Internal users of accounting information are those individuals inside a company who plan, organize, and run the
business. These users are directly involved in managing and operating the business. These include marketing managers,
production supervisors, finance directors, company officers and owners
Internal users (Primary Users) of accounting information include the following:
1. Management
Information need: income/earnings for the period, sales, available cash, production cost
Decisions supported: analyze the organization's performance and position and take appropriate measures to improve
the company results. Sufficiency of cash to pay dividends to stockholders; pricing decisions
2. Employees
Information need: profit for the period, salaries paid to employees
Decisions supported: job security, consider staying in the employ of the company or look for other employment
opportunities
3. Owners
Information need: profit or income for the period, resources or assets of the business, liabilities of the business
Decisions supported: considerations regarding additional investment, expanding the business, borrowing funds to
support any expansion plans.
Accounting information is presented to internal users usually in the form of management accounts, budgets, forecasts
and financial statements. This information will support whatever decision of the internal users.
EXTERNAL USERS
External users are individuals and organizations outside a company who want financial information about the company.
These users are not directly involved in managing and operating the business. The two most common types of external
users are potential investors and creditors.
Potential Investors use accounting information to make decisions to buy shares of a company. Creditors (such as
suppliers and bankers) use accounting information to evaluate the risks of granting credit or lending money. Also
included as external users are government regulatory agencies such as Securities and Exchange Commission (SEC),
Bureau of Internal Revenue (BIR), Department of Labor and Employment (DOLE),Social Security System (SSS), and Local
Government Units (LGUs).
External users (Secondary Users) of accounting information include the following:
1. Creditors: for determining the credit worthiness of an organization. Terms of credit are set by creditors according to
the assessment of their customers' financial health. Creditors include suppliers as well as lenders of finance such as
banks.
2. Tax Authorities (BIR): for determining the credibility of the tax returns filed on behalf of a company.
3. Investors: for analyzing the feasibility of investing in a company. Investors want to make sure they can earn a
reasonable return on their investment before they commit any financial resources to a company.
4. Customers: for assessing the financial position of its suppliers which is necessary for them to maintain a stable source
of supply in the long term.
5. Regulatory Authorities (SEC, DOLE): for ensuring that a company's disclosure of accounting information is in
accordance with the rules and regulations set in order to protect the interests of the stakeholders who rely on such
information in forming their decisions.
SUMMARY OF THE DIFFERENCES BETWEEN INTERNAL AND EXTERNAL USERS
Internal users of accounting information are those who are involved in planning, organizing and running the business.
They need more detailed information on a timely basis in order to support their decisions. Examples of these internal
users are managers, employees and owners.
The external users of accounting information are those individuals or organizations outside a company who are
interested in its financial information. Examples of these external users are potential investors, suppliers and
government agencies.
EVALUATION (5 MINUTES)
Give at least 3 internal users of accounting information. (3 pts)
Give at least 3 external users of accounting information. (3 pts)
Differentiate internal users from external users of accounting information. (9 pts)
