Question

1. Discuss internal and external users of accounting information. What areas of accounting provide them with information? Give an example of the type of report each type of user might use.

2. Explain the meaning of the business entity concept.

3. What is the major difference between the objective of financial accounting and the objective of managerial accounting?

Answer 1

Internal Users of accounting information are Managers, employees, board of directors and owners of the business and external users are government, tax authorities, investors, creditors, financial institutions.

Areas of accounting which provide them information are profitability, liquidity, solvency, efficiency of the organization. income statement, position statement, cash flow statement, statement of owners equity are the elements of financial statements which provides the accounting information. For example investors are interested into statement of owners equity while tax authorities are interested into income statement to know the amount of profits and taxes to be paid. creditors are interested in balance sheet to know the liquidity position of the company.

2- Business entity concept says that business is a legal separate entity from its owners. according to his concept owners are not responsible for the acts of the entity. According to concept Investor who have provided capital is separate from the legal entity.

3- Major difference between managerial accounting and financial accounting is that management accounting is used for decision making while financial accounting is concerned with recording of financial transaction and preparation of financial statement.