Republic of the Philippines

Department of Education
National Capital Region
DIVISION OF CITY SCHOOLS – MANILA
Manila Education Center Arroceros Forest Park
Antonio J. Villegas St. Ermita, Manila

FUNDAMENTALS OF ACCOUNTANCY,
BUSINESS AND MANAGEMENT1

Accounting Communicates…
Source: https://ph.images.search.yahoo.com/yhs/search?p=picture+of+accounting+users&fr=yhs-itm-001&hspart=itm&
hsimp=yhs-001&imgurl=https%3A%2F%2Ffanyv88.com%3A443%2Fhttps%2Fimage.slidesharecdn.com%2Fusersofaccountinginformation-131122025
357-hpapp02%2F95%2Fusers-of-accounting-information-3-638.jpg%3Fcb%3D1385088906#id=9&iurl =https% 3A%2
F%2Fimage. slidesharecdn.com%2Fusersof acco untinginformation-131122025357-phpapp02%2F95%2Fusers-of-
accounting-information-3-638.jpg%3Fcb%3D138508906&action=click

Quarter 1 Week 1 Module 2

Learning Competencies:
1. define internal and external users of
accounting and give examples.
 HOW TO USE THIS MODULE?
Before starting the module, I want you to set aside other task/s that may disturb
you while enjoying the lessons. Read the simple instructions below to have
successfully enjoy the objectives of this kit. Have fun!
1. Follow carefully all the contents and instructions indicated in every page
of this module.
2. Write on your notebook the concepts about the lessons. Writing
enhances learning that is important to develop and keep in mind.
3. Perform all provide activities in the module.
4. Let your facilitator/guardian assess your answer using the answer key
card.
5. Analyze conceptually the post-test and apply what you have learned.
6. Enjoy Studying.

PARTS OF THE MODULE

 Expectations - These are what you will be able to know after

completing the lessons in the module.
 Pre-test - This will measure your prior knowledge and the concepts
to be mastered throughout the lesson.
 Looking Back to your Lesson - This section will measure what
learning’s’ and skills did you understand from the previous lesson.
 Brief Introduction- This section will give you an overview of the
lesson.
 Activities - This is a set of activities you will perform with a partner.
 Remember - This section summarizes the concepts and applications
of the lessons.
 Check your Understanding - It will verify how you learned from the
lesson.
 Post-test - This will measure how much you have learned from the
entire module

1
 MODULE External and Internal Users of
2
Accounting Information

EXPECTATIONS

This module was written for you to accomplish at home. It was carefully
designed so that you can work at your own pace and allow self-discovery of the
concept through activities that you will perform. Activities were also selected to allow
independent learning which also aims to develop students’ reading comprehension
skills through understanding written texts.
After going through the module, you are expected to:
1. define internal users and give examples; and
2. define external users and give examples.

PRE-TEST

I. Internal vs. External Users

A. The following are users of financial statements. Identify if the users mentioned
below are external or internal.
__________1. Customers
__________2. Bureau of Internal Revenue
__________3. Labor unions
__________4. Factory manager
__________5. Vice-President of Finance

II. TRUE or FALSE

Directions: Before each statement, write TRUE if the statement is correct or FALSE
if the statement is incorrect.

______________ 1) Tax Authorities are external users of financial information with

direct interest in the business entity.
. _______________2) Managers use financial information to set goals for the
company.
_______________3) Creditors make use of financial reports to know how the
business used the money lent to the entity.
______________ 4) Potential investors are interested in financial information that
will help them know the ability of the entity to pay dividends.
_______________ 5) The financial statements provide all the needed information by
decision makers.
_______________ 6) The financial statements assist the investors to decide whether
to sell or hold their investment in the entity.

2
_______________ 7) The shareholders or owners, management, and the company
employees are external users.
_______________ 8) Internal users of financial information are decision makers who
belong to the business organization itself.
_______________ 9) Suppliers use accounting information as bases of decisions on
whether to extend credit to the economic entity.
_______________ 10) Financial reports provide information on the ability of the firm
to pay wage increase for their employees
• Source: Ferrer R.C. et.al. (2017). Fundamentals of Accountancy, Business and Management part 1, Bandolin Enterprise,
(Publishing and Printing) Bakekang Sur, Baguio City

LOOKING BACK TO YOUR LESSON

Are you ready to learn more? Just enjoy learning.

Directions: The following are incomplete sentences, complete them using the
terms which were discussed and understood in the previous topic.

1. ___________ is a method of identifying, recording and communicating

economic information that is useful in making economic decision.
2. Only ________________ are recorded in the accounting books. Accountable
events are those that affect the assets, liabilities, equity, income and expenses of
a business.
3. The information processed in an accounting system is communicated to
interested users through accounting reports. What report does it mean?
4. Accounting is considered as the ____________________ “because it is
essential in the communication of financial information.
5. Who is the father of modern accounting? ________

If you don’t have problems on Module 1, start doing Module 2, but if you have,
kindly ask help from your teacher. Good luck and enjoy learning!

BRIEF INTRODUCTION

Accounting communicates financial information to decision makers. Different

decision makers are users of these accounting information’s.

On the above information, kindly distinguish who are the external and who are
the internal accounting users: Put a letter “I” if internal and “E” for External. Please
put your answer on the space provided before each number.
__________ 1. Chief Executive – Officer
__________ 2. Department Heads
__________ 3. Buyers
__________ 4. Investors
__________ 5. Labor Unions
__________ 6. Accountants
__________ 7. Bureau of internal Revenue
__________ 8. Businessman
__________ 9. Team Leaders

3
 __________ 10. Creditors

Answer: 1,2,5,6,8,9 are the internal users of accounting information, while

3,4,7,10 are the external users.

To understand more, Let’s be guided that INTERNAL USERS - are those

who make decisions on behalf of the organization. They include:
Managers/Management: Top-level management, Middle-level management, Lower-
level management Employees/labor unions and Owners. Likewise, EXTERNAL
USERS of financial reports are those who make their decisions based on the
company’s financial information. They are the following: Potential investors,
Creditors and potential creditors, Customers.

In addition, Let’s Evaluate the types of information classified as to user’s

need. Identify if the sentence classified as General purpose accounting information
users or Special purpose accounting information: On the space provided kindly write
“GP” if the purpose is for external and “SP” for internal users.
_________1. The Bureau of Internal Revenue audited Richard Cruz’s
business.
_________2. The Managers declared that their store hit the target quota.
_________3. The teacher of accounting asked the receipt from the store
when they buy Personal, Protective Equipment.
_________4. The vending machine provided receipt to the buyer.
_________5. The President presented the financial report to the people as a
part of transparency.

Answer: 1,3, 4, and 5 are “GP”, while 2 is “SP”.

To make things clear, kindly note that General Purpose Accounting

Information – is information designed to meet the common needs of most statement
users. It is provided by financial accounting and is prepared primarily for external
users, while the Special Purpose Accounting Information – is information
designed to meet the specific needs of statement users. It is provided by
management accounting or other branches of accounting and is prepared primarily
for internal users.

User Example of decision to Example of information

make needed
1. External user > Existing investors: > Audited financial statements
(investor) Whether to hold or sell of the business to aid in
investment in stocks analyzing the value of the
company (General purpose
> Potential investors:
information)
Whether to buy shares of
stocks
2. External User > Lender: Whether to > Audited financial statements
(Lender or Supplier) extend a loan to a business of the business to aid in

4
 > Supplier: Whether to analyzing the company’s ability
extend credit to a business to pay its debts (General
purpose information)
3. Internal user > Whether or not to > Analysis of the effects of
(Manager) increase the sale price of a sales prices to earnings
product (Special purpose information)
4. Internal user > How much capital is > Budget report (Special
(Manager) needed to manufacture a purpose information)
new product?
• Source: Ferrer R.C. et.al. (2017). Fundamentals of Accountancy, Business and Management part 1, Bandolin Enterprise,
(Publishing and Printing) Bakakeng Sur, Baguio City

ACTIVITIES
Rubrics in Checking Essays: Content = 30%, Understanding/Application = 25%,
Original Thinking = 25%, Structure = 10% and Grammar = 10%.
Independent Activity 1.
Collaborate and Communicate:
1. Observe a business firm on your community: What is the accounting
information needed of the business on your community and how would you have
classified as internal or external users? (5 points)
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
2. Differentiate General Purpose Accounting Information from Special
Purpose Accounting Information? Give example. (5 points)
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
__________________________________________________________________

3. Give four (4) examples of accounting information needed to make decision

by the users. (5 points)
___________________________________________________________________
__________________________________________________________________

(: you may use separate sheets if needed)

5
 REMEMBER

 Financial accounting focuses in the information needs of external users while management
accounting focuses on the information needs of internal users.
 External users are those who are not directly involved in managing the business. Internal users
are those who are directly involve in managing the business.
 Accounting information may be either (a) general or (b) special purpose. General purpose
accounting information is provided by financial accounting and is prepared primarily for
external users. Special purpose accounting information is provided by management accounting
or other branches of accounting and is prepared primarily for internal users.

CHECK YOUR UNDERSTANDING

I. INTERNAL VS. EXTERNAL USERS

Directions: The following are users of financial statements. Identify if the users
mentioned below are external or internal.
1. Securities and Exchange Commission
2. Investors
3. Suppliers
4. Factory workers
5. A bank company

II. MULTIPLE CHOICE

Directions: Choose the letter corresponding to the correct answer for each of the
questions provided below.
1) Internal users of accounting information include all the following except
a) company officers b) potential investors
c) sales manager d) production supervisors
2) Which of these is not an external user of accounting information?
a) Regulatory agencies b) Customers
c) Investors d) All of these are external users
3) Who carries the responsibility to review the work of the accountants and issue
opinions as to the fairness of financial statements?
a) the board of directors b) the internal auditors
c) the external auditors d) management
4) Which of the following is an internal user of a company’s financial information?
a) creditors with long term contracts with the company
b) holders of the company’s bond
c) stockholders in the company
d) board of directors
5) Which of the following is a direct user of accounting data for a company?
a) Regulatory agencies b) Trade associations

6
 c) Creditors d) Financial analysts and advisors
6) Which of the following is an indirect user of accounting information?
a) Labor unions b) Finance Directors
c) Company officers d) Managers
7) Identify which of the of the following are considered external users of financial
accounting information.
a) Employees b) Managers
c) Owners d) Creditors
8) Which of the following are considered interested in determining the return of
investment in the business?
a) management b) creditors
c) employees d) owners
9) Which of the following is not considered as an external user?
a) regulatory agencies b) taxing authorities
c) employees d) suppliers
10) Which of the following statements about users of accounting information is
correct?
a) Management is an external control
b) Tax authorities are internal users
c) Employees are external users
d) Creditors are external users
• Source: Ferrer R.C. et.al. (2017). Fundamentals of Accountancy, Business and Management part 1, Bandolin Enterprise,
(Publishing and Printing) Bakakeng Sur, Baguio City

POST-TEST

I. Collaboration and Communications:

Rubrics in Checking Essays: Content = 30%, Understanding/Application = 25%,
Original Thinking = 25%, Structure = 10% and Grammar = 10%.

Please answer the following questions briefly.

1. Who are the users of accounting information? Give at least five. (5 points)
2. What are the types of information needed by the two major groups of users?
Give five. (5 points)
3. How does accounting provide important data to internal users? (10 points)
4. What are the accounting information needed by the following? (15 points)
5.1. investors
5.2. creditors
5.3. tax authorities
5.4. customers
5.5. owners
5. How does a direct user differ from an indirect user? (5 points)

7
 REFLECTIVE LEARNING SHEET

Student:
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
Teacher: Accounting is the language of business; it brings life to the otherwise
lifeless business activities. It acts as a bridge between users of the information and
the day to day transactions that occur inside a business. Users of accounting
information may be inside or outside a business. “The wisest have the most authority
– Plato.”
To further understand the lessons kindly visit:
1. https://accounting-simplified.com/financial/introduction/users-of-accounting-
information.html
2. https://www.iedunote.com/users-of-accounting- information
3. https://www.accountingnotes.net/accounting/users-of-accounting-
4. https://www.information-internal-and-external-users/3663

8
 REFERENCES

• Accounting Theory (n.d.) Retrieved from ttp://accountingtheory.weebly. com/nature-

and-scope-of—accounting
• Andres, C.S., et al. (2016)” Teaching Guide for Senior High School Fundamentals
of Accountancy, Business and Management 1” – Published by Commission on
Higher Education in collaboration with the Philippine Normal University
• Ferrer R.C. et.al. (2017). Fundamentals of Accountancy, Business and
Management part 1, Bandolin Enterprise, (Publishing and Printing) Bakakeng Sur,
Baguio City
• Rabo, Joy S. et.al. (2019). Fundamentals of Accountancy, Business and
Management 1 (K to 12 Revised Edition), Vibal Publishing, Manila
• Valencia, E. and Roxas, G. (2009). Basic Accounting, 3rd ed. Valencia Education
Supply
• Valix, Conrado T. et.al. (2015). Financial Accounting, Vol. 1, First part. GIC
Enterprises & Co. Inc • Weygandt, J. et. al. (2012) Accounting Principles 10th ed.
John Wiley & Sons (Asia) Pte. Ltd.

Acknowledgment

Management and Development Team

Schools Division Superintendent, Manila: Maria Magdalena M. Lim, CESO V

Chief Education Supervisor: Aida H. Rondilla
CID Education Program Supervisor : Remylinda T. Soriano
CID LR Supervisor: Lucky S. Carpio
CID-LRMS PDO II: Albert James P. Macaraeg
Reviewers/Validators: Remylinda T. Soriano, EPS, Math
Angelita Z. Modesto, PSDS
George B. Borromeo, PSDS
Editor/s: Isabel A. Gumaru, DBA
Ellaine I. Dela Cruz, DBA
Writer/s: Manuel L. Hermosa, EdD
Revised, 2020

9
 ANSWER KEY

Answer Keys: Module 2 – Users of Accounting Information

Pre-test
I. Internal Versus External:
1. External 4. Internal
2. External 5. Internal
3. Internal

II. True or False

1. True 6. True
2. True 7. False
3. True 8. True
4. True 9. True
5. False 10. True

Activities

Essay
.

Check Your Understanding

I. Internal Versus External:
1. External 4. Internal
2. External 5. Internal/External
3. External

II. Multiple Choice

1. B 6. A
2. D 7. D
3. D 8. D
4. D 9. C
5. A 10. D

10