Question

Users of accounting information can be divided broadly into two types: internal users and external users. Complete the table below for each type of user, indicating how they use information and whether they are an internal or external user.

		User		Use of Information		Internal/External User
1.		Shareholder
2.		Chief Financial Officer
3.		Employee
4.		Bank
5.		Canada Revenue Agency (CRA)

Answer 1

Answer :

	User	Use of information	Internal/external User
1.	Shareholder	shareholders uses accounting information to take investment decisions. Based on the financial performance and position of the business shareholder decides to invest or to sell his shares. He evaluates the risk involved in continuing his investments in the business. He also considers the rate of returns on his investments to take investment decisions.	Internal User
2.	Chief financial officer	Chief financial officer deals with financial activities of the business such as raising funds, utilising funds and distributing returns. He uses accounting information to decide the optimal capital structure i.e. he decides proportion of debt and capital based on cost of capital. He considers the amount of interest payments and overall profits the business is making at a specified capital structure and then he evaluates the best capital structure.	Internal User
3.	Employee	Employees are concerned about their job safety, so they evaluate whether their position in the company is secured looking at the financial position of the company. They also consider the profits made by business to ask for additional benefits and increment in the salary. Sometimes they also uses the information to purchase shares if the business is showing consistent growth.	Internal User
4.	Bank	As business people approaches bank to take loans and other financial aids, bank uses accounting information to evaluate the profit making capacity of the business. It considers how the business uses the funds i.e. the sector of investment. It considers the past performance of the company and decides to lend money.	External User
5.	Canada Revenue Agency (CRA)	CRA is a government body responsible for tax regulations, so it uses the accounting information to decide how much tax to be collected based on the income generated by business. It also considers the employment generated by company and evaluates to provide tax incentives.	External User

Note :

Persons who have some interest in the business are known as internal users, for example - owners, employees and managers.

Persons who don't have any interest in the business but deals with the business from outside are known as external users, for example - government and financial institutions.