Different Users of Accounting Information
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Different Users of Accounting Information

This article was written as a response to the question: Who are the different users of accounting information?
Accounting information is contained in finanical statements of the company. There are many persons who study the financial statement of the company for a specific purpose. These persons are called as users of Accounting information. There are many users of accounting information. This article provides a detailed information regarding users of accounting information and how such information is used by such users.

Introduction

This article is written to address a specific question raised by knoji user, Jovy Rivera. The question raised by the user was  “Who are the different users of accounting information?” and hence this article.  However, this article will also be useful to other public in general also.

Accounting information

Accounting information is given by a Company in its' financial statements. The financial statements typically is made up of -

  • Balance Sheet; and
  • Profit and Loss Account.

Public Companies and their financial statements

Public companies are expected to keep other documents along with the aforesaid document such as the Directors Report, Fund Flow Statement, Cash Flow Statement, Related Party Disclosures, Segment Reporting, Notes to Accounting Policy, Contigent Liability, Deferred Taxes, Important financial events, Directors Report, Coporate Governance Report and much more.  Many Public Companies are required to comply with strigent accounting and reporting information.

Investors

The accounting information provided by the Public Companies are used by many users of accounting information.   One of the most important user of the accounting information is the investor.

Investor is a person often also called as share holder, is a person who has invested in the shares of the company. In short, the user has contributed towards the share capital of the company.  Generally, investors look into the accounting information of public companies to get an overview of the profitability of the company.  Investors usually will prefer higher return of their investment and hence they will judge the profitability of the company on the basis of accounting information.  

Profitability of the company is computed in the profit and loss account in accordance with country's rules and regulation and accounting standards.  This is usually referred to as GAAP ie Generally Accepted Accounting Principles.

Government

Every company is required to pay taxes in accordance with the domestic tax laws.  The taxes are paid on the income earned by the company. Income is computed in accordance with the accouting information contained in the financial statements.  Thus the Government would judge the finanical statement of the company to find out if income computed is in accordance with accounting standards ie the generally accepted accounting principles and taxes are paid in accordance with the domestic tax laws.

Employees

Before joining a company, a prospective employee would study the financial statements of the company.  The employee would judge if the company is growing and that it would be fruitful to join the company given the states of its finanical affairs.

Creditors

A creditor before giving loan to the company, would study the financial statement of the company to understand whether the company would be in position to pay off its debt or not.  In case of bankrupt companies, a creditor would generally avoid giving any loans since the company would not be in a position to pay of its' debts.

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