BAGUIO CITY HIGH SCHOOL

SENIOR HIGH SCHOOL

Course Title: Fundamentals of Accountancy, Business and Management 1

Content Standards The learners demonstrate an understanding of the external and internal users of financial information
The learners shall be able to:
1. Identify the users of information, type of decisions to be made, and type of information needed by the
Performance Standards
users
2. cite users of financial information and identify whether they are internal or external users
The learners:
1. define external users and give examples
Learning Competencies 2. define internal users and give examples
3. identify the type of decisions made by each group of users
4. describe the type of information needed by each group of users

A review of how we defined accounting reveals that it is a service activity concerned primarily with providing financial
information about a business entity such that diverse users can make sound and informed decisions. Who are these users and
what type of information do they need?

Types of information provided by accounting

1. Profitability. This refers to the ability of a business entity to generate profit in a given accounting period. This
information can be seen in the Income Statement. This is typically referred to also as the performance of the entity in
a given period.
2. Liquidity. This refers to the ability of a business entity to pay its current obligations as they become due. This is often
attributed to the presence of ‘cash’ and other liquid assets.
3. Solvency. This refers to the ability of a business entity to pay its long-term obligations. A solvent firm has several
long-term assets that it can use to pay obligations.
4. Stability. A stable firm has a good track record of profitability, liquidity and solvency. There is a good amount of
evidence that it will continue to be such in the future.

Users of Accounting Information - Internal & External

Internal Users
Internal users are those who are part of the organizational structure of a business entity. Accounting information is
presented to internal users usually in the form of management accounts, budgets, forecasts and financial statements.

1. Board of Directors (BOD) – the BOD is interested in the performance and position of the entity so that they can take
appropriate measures to improve the company’s results. This shall also serve as their basis in declaring dividends to
stockholders.

2. Managers – managers take an active role in the day-to-day operations of the company, thus information is vital to them
in planning and ensuring that goals, objectives or targets are being met.

3. Employees – their primary concern is to assess the company’s profitability and its consequence on their future
remuneration and job security. Employees need accounting information to know if the business could provide the
necessary benefits that is due to them. Through accounting information, employees would be informed with regards to
the operations of the firm that they are working for.

4. Owners/ Stockholders/ Partners – financial information is needed by them in analyzing the viability and profitability of the
funds they contributed or invested into the business and determining any future course of action

5. Labor Unions – these are organizations of employees in a certain company. They are interested in the financial status of
the company to whom they are employees so that they can properly ask for beneficial provisions in their collective
bargaining agreement.

External Users
External users are those who are not part of the organizational structure of a business entity yet maintain a stake in the
business/ company. Accounting information is presented to external users in the form of financial statements and annual reports.

Lesson 3: Users of Accounting Information 1

2. Customers – they need accounting information in order to determine the continuity of a business, most especially when
there is a long-term engagement between the parties or if the customer is dependent on the enterprise. For instance,
students have to go to a financially stable school that could continue to provide quality education until they graduate.
Through accounting information, customers could also check if prices that are being charged are reasonable. Students
could look into the financial statements of a school and determine if they are being charged the right tuition fees.

3. Suppliers – they are just like creditors whose primary concern is to assess the ability of the company to pay whatever the
company owes them.

4. Investors - Investors need accounting information in order to make relevant decisions. Through accounting information,
they could determine whether to purchase stocks, sell stocks or hold the stock. Businessmen could determine which
operations to continue or discontinue, which product line is profitable, and many more. They need to know about the
financial performance, position, and cash flows of a business.

5. Government Agencies / Regulatory Authorities – for ensuring that the company's disclosure of accounting information is
in accordance with the rules and regulations set in order to protect the interests of the stakeholders who rely on such
information in forming their decisions. Included here is the Securities and Exchange Commission who regulates the
conduct of business of corporations; and the Bureau of Internal Revenue which determines the credibility of the tax
returns filed by the company.

6. Researchers – Researchers can do a lot of things with accounting information. Research can help companies improve
their systems and processes. Industry standards can also be established through research

Lesson 3: Users of Accounting Information 2