Fundamentals of Accounting, Business, and Management

July 23, 2019: Users of Accounting

USERS OF ACCOUNTING
Knowing Accounting Users

Internal External
Owner Government
Management Creditors
Employees General public
Customer
Academe
Potential investor

External:
1. Customers
a. Main source of income of business
b. Most businesses are established solely for the service of their customers
c. People or entities that acquire goods or services for a fee
d. Can also be a company/entity (not just people)
e. What do customers look for?
i. [quality, price, convenience]
ii. Accounting information of a business to understand if it will be profitable to
transact
1. Ex: in supermarkets, they look for products that are profitable
2. Profitable company = low risk of loss to the customers
iii. Future commitments of the company
1. Ex: plans for expansion of the business/discontinue a business segment
2. Look for continuous growth in a company and things that will affect
long-term plans
3. Capabilities to honor obligations
a. Warranties and after-sale service

2. Creditors
a. People, institutions, or banks that lend or owe money or resources to the business in
exchange for a fee (interest)
i. Fee charged is the payment for the use of their resources
b. Biggest fear: not getting paid back
i. Examination of financial statements before lending the money.
ii. Factors considered before lending:
1. Riskiness of lending
2. Profitability of the company
3. Company’s amount of borrowings

3. Potential Investors
 a. May provide additional fuel to drive the company forward by putting their resources in
a business, hoping to earn a decent amount of return.
b. Investors may lose or win in their investment. It is a gamble
c. Profitability is the main factor of consideration

4. Government
a. Regulate the business in the economy
b. Compute for the amount of taxes payable
c. Ensure that companies do not misrepresent their income

5. Academe
a. Financial statement serve as a blueprint to help students in understanding the field of
accountancy
b. Study the financial statements to identify particular trends in a specific industry or the
economy as a whole
c. Researchers may also aim to improve the accountancy practice

6. Public
a. Companies undoubtedly affect the whole economy
i. Companies create job for the public
ii. Pull the economy towards growth or recession
iii. Financial statements give us hints about the condition of the economy
iv. If economy isn’t doing well, general public cut on their spending and increase
their savings. Contrary is true if the economy is prosperous
v. Analyzing financial statements: public can properly respond to the various
economic cycles
b. Public’s behavior concerning their levels of consumption and spending is not the only
thing affected when they study financial statements. Some financial statements can
help make decisions on:
i. Whether or not it is wise to start a business given the current economic
conditions
ii. To stay on a current job or look for a higher-paying job
iii. Determining the best use of a person’s resources
iv. Determining the optimal level of savings and consumption

Internal:
1. Management
a. Those who can implement and influence decisions affecting the company’s operations
b. Members of the board, top management, all managers and supervisors
c. All managers must know the company inside and out
d. Problems faced by managers:
i. What areas of the business are becoming problematic?
ii. What segments of the business underperformed during the last period? What is
the cause of this?
iii. Is the level of company expenses becoming alarming?
iv. How does the company handle its debt? Is the company incurring too much
borrowing?
2. Employees
a. Use the statements for personal reasons
b. Check with the profitability of a business for job security

3. Owners or stockholders
a. Existing investors of the company
b. Take active roles in the management of the business while others wait for the
generation of process
c. Interested in the results of company operations