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BK Lesson 3

The officers of the Local Government Unit would be considered external users of a business's accounting information. As representatives of an organization outside of the business, LGU officers are not directly involved in managing or operating the business. They would want financial information about businesses within their jurisdiction to understand tax obligations and ensure regulatory compliance. As external users, LGU officers need summarized, standardized information to evaluate the overall financial health and activities of businesses.

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31 views23 pages

BK Lesson 3

The officers of the Local Government Unit would be considered external users of a business's accounting information. As representatives of an organization outside of the business, LGU officers are not directly involved in managing or operating the business. They would want financial information about businesses within their jurisdiction to understand tax obligations and ensure regulatory compliance. As external users, LGU officers need summarized, standardized information to evaluate the overall financial health and activities of businesses.

Uploaded by

Invento Gretchen
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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FUNDAMENTALS OF

ACCOUNTANCY,
BUSINESS, AND
MANAGEMENT 1
The following learning objectives:
• I will be able to define external users of
accounting information and give examples
• I will be able to define internal users of
accounting information and give examples
• I will be able to identify the types of decisions
made by each group of users
• I will be able to identify the types of
information needed by each group of users
Recall the definition of accounting
What business would you want
to enter into?
“If you are the owner, what do you
want to know about the business?
What possible decisions can
accounting support?”
“What if you are from a Local
Government Unit (City/Municipality)?
Do you think the Local Government
( City/Municipality) will be interested
with your accounting reports/records?”
“Who uses accounting
data or information?”
Two broad categories of users of
financial information:
internal and external users
INTERNAL USERS
Internal users of accounting information are
those individuals inside a company who plan,
organize, and run the business. These users
are directly involved in managing and
operating the business. These include
marketing managers, production supervisors,
finance directors, company officers and
owners
Give examples of internal users

“what information will that user need that can


be answered by
accounting?”
Management
Information need: income/earnings for the
period, sales, available cash, production cost
Decisions supported: analyze the
organization's performance and position and
take appropriate measures to improve the
company results. sufficiency of cash to pay
dividends to stockholders; pricing decisions
Employees
Information need: profit for the
period, salaries paid to employees
Decisions supported: job security,
consider staying in the employ of
the company or look for other
employment opportunities
Owners
Information need: profit or income for
the period, resources or assets of the
business, liabilities of the business
Decisions supported : considerations
regarding additional investment,
expanding the business, borrowing
funds to support any expansion plans.
EXTERNAL USERS
External users are individuals and organizations
outside a company who want financial
information about the company. These users are
not directly involved in managing and operating
the business. The two most common types of
external users are potential investors and
creditors. Potential Investors use accounting
information to make decisions to buy shares of a
company.
Creditors (such as suppliers and bankers) use
accounting information to evaluate the risks of
granting credit or lending money. Also included as
external users are government regulatory agencies
such as Securities and Exchange Commission
(SEC), Bureau of Internal Revenue (BIR),
Department of Labor and Employment (DOLE),
Social Security System (SSS), and Local
Government Units (LGUs).
Creditors: for determining the credit
worthiness of an organization. Terms
of credit are set by creditors
according to the assessment of their
customers' financial health. Creditors
include suppliers as well as lenders of
finance such as banks.
Tax Authorities (BIR): for determining the
credibility of the tax returns filed on behalf of
a company.
Investors: for analyzing the feasibility of
investing in a company. Investors want to
make sure they can earn a reasonable return
on their investment before they commit any
financial resources to a company.
Customers: for assessing the financial position of
its suppliers which is necessary for them to
maintain a stable source of supply in the long
term.
Regulatory Authorities (SEC, DOLE): for ensuring
that a 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.
Give examples of external users.

Follow up with a question: “what


kind of information do users need
that can be answered by
accounting?”
SUMMARY OF THE DIFFERENCES BETWEEN INTERNAL
AND EXTERNAL USERS

Internal users of accounting information are those


who are involved in planning, organizing and running
the business. They need more detailed information on
a timely basis in order to support their decisions.
Examples of these internal users are managers,
employees and owners.
The external users of accounting information are
those individuals or organizations outside a
company who are interested in its financial
information. Examples of these external users are
potential investors, suppliers and government
agencies.
Is the Local Government Unit (LGU)
interested in your accounting
reports?
“Are the officers of the Local
Government Unit internal or external
users? Why?

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