Question

Please identify two types of internal users and describe how they use accounting information.

Answer 1

Internal users are the primary users of accounting.

Two types of internal users and how they use the accounting information given below,

1. Owners

Owners need to assess how well their business is performing.

Financial statements provide information to owners about the profitability of the overall business as well as individual products and geographic segments.

Owners are also interested in knowing how risky their business is.

Accounting information helps owners in assessing the level of stability in business over the years and to what extent have changes in economic factors affected the bottom line of the business.

Such information helps owners to decide if they should invest any further in the business or if they should use their financial resources elsewhere in more promising business ventures.

2. Managers

Managers need accounting information to plan, monitor and make business decisions.

Managers need to allocate the financial, human and capital resources towards competing needs of the business through the budgeting process.

Preparing and monitoring budgets effectively requires reliable accounting data relating to the various activities, processes, products, services, segments and departments of the business.

Management requires accounting information to monitor the performance of business by comparison against past performance, competitor analysis, key performance indicators and industry benchmarks.

Managers rely on accounting data to form their business decisions such as investment, financing and pricing decisions.

In case of investment decisions for example, managers would require the return on investment calculation of a proposed project supported by reliable estimates of the costs and revenues.