Types and Users of Accounting Information
An organisation’s financial information is recorded, examined, summarised, and interpreted through the accounting process. Accounting Information is needed by stakeholders of the firm, including the employees, owners, creditors, banks and other lenders, regulatory agencies, and tax authorities, among others, so that they can make use of the accounting information. In order to communicate with both the internal and exterior worlds, an organisation needs accounting information.
Accounting Information can be of different types and use. Majorly there are 3 types of Accounting Information:
Types of Accounting Information:
1. Financial Accounting: Financial accounting is historical in character, i.e., it documents transactions that have already happened. It includes creation, analysis, and presentation of financial statements. The creation of the Profit and Loss Account and the Balance Sheet is the final step in financial accounting. It primarily aids in determining the financial situation as of the specified date as well as the net result for an accounting period.
2. Management Accounting: Management Accounting is concerned with the process of accumulating accounting information for internal operational reporting. It consists of many information regarding the planning, controlling, decision-making, etc., related to the firm. It includes many methods of information grouping and reports preparation that managers use to carry out their duties. Cost accounting, which deals with cost ascertainment and cost control, is a crucial part of management accounting.
3. Cost Accounting: The process of accounting for cost begins with recording income and expenditure or the bases on which they are calculated and ends with the preparation of periodical statements and reports for ascertaining and controlling costs. The goal of cost accounting is to track, evaluate, and promote improvements in internal cost management and effectiveness. In a nutshell, cost accounting is a system for managing operational analysis.
Users of Accounting Information and their Needs:
The public, the government and its agencies, management, employees, lenders, suppliers, and other creditors in the business world are among the users of accounting information. These users make use of accounting information according to their needs:
1. Public: The public is impacted by businesses in a number of different ways. For instance, businesses may have a significant positive impact on the community’s economy through their employment of locals and the use of their suppliers. Financial statements can help the public by informing them of recent changes and trends that have affected the enterprise’s success and the scope of its activities.
2. Government and their Agencies: The allocation of resources and, consequently, business activities are of interest to the government and its agencies. They also need the information to set tax policy, control business activity and calculate various indicators, like GDP and National Income.
3. Management: In order to assess the firm’s short-term and long-term solvency, management needs information regarding the firm’s activity. Management needs accounting information to make several decisions, like determination of selling price and other strategies. It is also needed for comparison of performance with similar enterprises in the industry and to make plans for the future regarding expansion, reduction, etc.
4. Employees: The stability and profitability of the employers are topics that interest both the workforce and the groups that serve as its representatives. Additionally, they are looking for facts that will help them judge whether the company can afford to pay salaries, offer retirement benefits, and create job prospects.
5. Creditors: In order to decide whether to prolong, sustain, or restrict the flow of credit to a specific firm, short and long term creditors need to know if the amount owed to them will be paid when due. To ascertain if their principal amounts and interest accrued will be paid when due and whether to prolong, maintain, or restrict the flow of credit to a firm, short and long-term creditors need information. Such information helps them to understand the paying ability of the enterprise.
6. Present Investors: In order to assess the pros and cons of their investment, and decide whether to buy, hold, or sell the shares, current investors require accounting information.
7. Potential Investors: To evaluate an enterprise’s strengths and decide whether to purchase shares, prospective investors also require accounting information.
8. Customers: Customers are curious about an organisation’s future, especially if they depend on it or have a long-standing relationship with it. Accounting information increases or decreases a firm’s goodwill amongst its customers.
9. Tax Authorities: To determine an enterprise’s tax liabilities, tax authorities need information. In order to compare the information on tax returns with the supporting accounting records, tax authorities occasionally audit the returns filed by firms. The accounting records of suppliers and customers are also cross-checked by tax authorities to spot suspected tax evasion.
10. Auditor: Auditors examine financial statements and underlying accounting records to form an audit opinion. Investors and other interested parties rely on external auditors’ independent assessment of the correctness of financial records.