The financial records of a company are important to many persons, businesses and institutions for several reasons. These users of accounting information have their own interests in the success of a business which is why accuracy is so important.
Users of accounting information are divided into internal and external users. Here, students of basic accounting, can learn about the top 10 users of accounting information and their interests in the success of a business.
10 Users of accounting information
Owners and shareholders
The owners and shareholders of a business are the first users of accounting information. These people have invested either their savings, time and energy into the business with the expectation to receive profits to take care of themselves and their families.
The manager of a business who may or may not be the owner is another user of accounting information. The information helps the manager to spot problems and opportunities to make proper decisions. The decisions made by this person will determine the success or failure of the business.
The employees are users of accounting information as they need to know the stability of their jobs. A business that is doing well allows employees to qualify for loans and mortgages at financial institutions, and for hire purchase at furniture stores.
Customers are users of accounting information as they need to know if the products and services that they desire will be available. Loyal customers of a particular brand or service may not respond well to changes in quality of products and services when a business is not doing so well.
Suppliers care about the accounting information of a business because they need purchases from a successful business. Suppliers also want to ensure that business is growing and ongoing in the future.
Banks that have provided loans to a business are users of accounting information. They must ensure that the business can pay off the funds and the interest on the loans. When the business is successful, the banks can provide more loans for expansion and the business will be able to pay them off on time.
Potential investors are persons and businesses that are users of accounting information. The success of a business may be of interest to them because they will be able to get a return on their investment into the business.
Competitors are businesses of a similar nature and are interested in the accounting information of another business as they target the same customers. They compare their prices, products, services and strategies to make themselves more competitive in the market.
The community consists of members of the general public who are interested in the accounting information of a business for different reasons. People want employment. They want to know if the business is making profits at the expense of the environment. Also, the community is concerned about the contribution that the business is making to the local community.
The Government is another user of accounting information for the purpose of collecting tax. A successful business allows the Government to collect taxes on products both locally and imported, incomes of employees, profits of businesses, properties, and bank accounts.
Studying principles of accounts can be very easy once you learn which items are Assets, Liabilities, Capital, Income and Expenses. The accounts that fall under these 5 headings are used throughout your POA course. READ MORE
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Liabilities are the items owed by the business. They are non-current also known as long-term or they are current also known as short-term. Non-current or long-term liabilities are items that are paid off in more than one year. READ MORE
Income is money that a business acquires that is earned, unearned and contributed. It has a credit balance in the ledger accounts when it increases and a debit balance when it decreases. READ MORE
Capital is assets invested into a business and the term describes the liquid assets available to spend. Generally, both fixed and current assets represent capital but stakeholders are more concerned about the continuity of the business using cash and assets that can be turned into cash quickly to pay liabilities and expenses. READ MORE
Expenses are the goods, services and charges that a business incurs as it functions. It has a debit balance in the ledger accounts when it increases and a credit balance when it decreases. The cost of expenses in relation to earned income determines whether the business makes a profit or a loss. READ MORE
Accounts are shaped like a T that has a left side called Debit or Dr and a right side called Credit or Cr. Debit means to have, increase, go up or come in and Credit means don’t have, decrease, go down or go out. A simple way to look at it is to say Debit and Credit mean to record the items that are in and out of the business. READ MORE
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Accruals are monies owed either by the business or to the business. This happens when the business does not pay cash for expenses incurred within the accounting period or when cash is not received for income earned within the accounting period. READ MORE
If you research Accounting Cycle, you would be bombarded with versions that might make your head spin. This article focusses on basic accounting for small business owners and students to understand the steps involved when recording the financial performance of a business. READ MORE
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