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CHAPTER 3

USERS OF ACCOUNTING
INFORMATION
AT THE END OF THE CHAPTER ,
LEARNERS BE ABLE TO:
define internal users and give examples
• 1.

• 2. define external 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
• “If you are the owner, what do you want to
know about the business? What possible
decisions can accounting support?”
• Possible answers on information needs: • How
much income have I earned for a certain
period? • How much receivables do I have?
• How much do I owe my suppliers? • How
much is the value of my inventory?
• Possible answers on decision support
• Will I be able to pay my liabilities if I earn this
much?
• Can I expand my business?
• Will I be able to afford buying new
equipment?
• Do I need to adjust my selling price? • Do I
need to cut costs?
STAKEHOLDERS
•Users of
accounting
information
INTERNAL
USERS
•Those who make
decisions on behalf of
the organization
1. MANAGERS/ MANAGEMENT
- Plan, organize and run a business

A. Top- level Management- CEO, CFO, COO,


-use information to oversee the performance of the whole
organization and sets its strategic direction.
B. Middle- Level Management-dept. heads, branch managers
and junior executives
-Ensure that their units performances are aligned with the
organization’s objectives
C. Lower-level Management- supervisors and team leaders
-They oversee the day-to-day operations and direct
employee’s in the performance of tasks
2. EMPLOYEES/ LABOR UNIONS
•They assess the company’s
profitability and stability, and
their consequence on future
salary and job security
3. OWNERS
• They provide the capital to the business.
- to help them decide whether they
should with draw or increase their
investments.
-Interested to know their investments
COMMON INFORMATION NEEDS OF
INTERNAL USERS
Do we have enough cash to How much is the cost of
pay bills? producing each unit of product?

Can the company afford to Which product line is more


give salary increase? profitable?

How much is the company’s How much is the tax payable to


sales growth for the month? the government?

The accounting information provided to internal users can be in


the form of management reports, budgets and financial
statements
QUESTIONS
•Who uses accounting information?
•What are the types of information
needed by the internal users?
•Why do you think these users need
accounting information?
ASSIGNMENT

•What are the other users of


accounting information and its
examples?
EXTERNAL USERS
•The external users of financial
reports are those who make their
decisions based on the company’s
financial information
1. POTENTIAL AND EXISTING INVESTORS

• They need information to help them


decide whether they should invest or not
in the business
• Through past performances or operating
results of the company , they would want
to know potential returns on their
investment.
2. CREDITORS AND POTENTIAL CREDITORS

•They assess the credit


worthiness and the capability
of the business to pay its
obligation including the
related interests on maturity
date.
3. CUSTOMERS
• They assess the financial position of their
suppliers which is necessary for them to
maintain a stable source of supply in the long
term.
• They are interested to know whether the
business will continue to honor its product
warranties.
4. SUPPLIERS
• THEY USE THE FINANCIAL STATEMENTS OF THEIR
CUSTOMERS TO DETERMINE WHETHER THE DEBTS
THEY OWED TO THEM WILL BE PAID WHEN DUE
OR WHETHER THE CUSTOMER HAS ENOUGH
FUNDS OR RESOURCES TO PAY THE GOODS TO
BE DELIVERED OR THE SERVICES TO BE
RENDERED.
5. TAX AUTHORITIES
•They use financial reports to
determine the credibility of the tax
returns filed on behalf of the
company.
•They are interested to know if the
business paid the correct amount of
taxes.
6. REGULATORY BODIES
• They want to ensure that the company’s disclosure
of accounting information is in accordance with the
rules and regulations set in order to protect the
interest of the stakeholders who rely on such
information.
• Examples of these regulatory bodies are the
Securities and Exchange Commission(SEC) and the
Bangko Sentral ng Pilipinas(BSIP)
7. PUBLIC
•They use the financial information
to know how the business affects
the economy possible prospects
for employment, and/ or for
educational and research
purposes
GUIDE QUESTIONS
1.Who uses accounting information?
2. What are the types of information needed by the internal
users and external users of accounting information?
3. Who are the internal users of accounting data?
4. How does accounting provide important data to internal
users?
5. What are the accounting information needed by
a. Investors
b. creditors
QUESTIONS

• 1. Who are the Internal users and external users


of accounting?
• 2. What is your basis in determining where the
given users belong?
• 3. Why do you think these users need
accounting information?
ACTIVITY# 1:PAGE 24
INTERNAL VS EXTERNAL USERS
The following are users of financial
statements. Identify if the users mentioned
below is external or internal.
Open your textbook on page 24, Exercise
3-1, A and B and Exercise 3-2 Identification.
Identify what kind of stakeholder is being
refered to. Choose from the following items
below.
ACTIVITY# 2
INTERNAL VS EXTERNAL USERS
• The following questions could be asked by an external or internal user. Identify
which questions would be asked by an internal user and external user.
____ 1. What price should be set for our product?
____ 2. Did the company earn a satisfactory income?
____ 3. Should we hire more employees?
____ 4. How does the company’s profitability compare to other companies?
____ 5. How much is the cost of each unit produced?
____ 6. Which product should we emphasize?
____ 7. Will the company be able to provide a return of investment to its
stakeholders?
ACTIVITY # 4 LIGHTS, CAMERA, ACTION!

•Divide the class into groups. Each


group should composed of 10
members. Role playing activity.
•Students act as users of accounting
information.
RUBRICS
Criteria Excellent (4)20 Good(3)15 Fair (2) 10 Weak (1)5

Content (50%)
Conveys full
understanding of
the content
Creativity and
Originality ( 30%)
All characters use
facial expression
and body
language to
make the play
unique
Teamwork (20%)
Total
Grand total
ACTIVITY
•I’m Scrambled! Move quickly!
•Direction: By group arrange the
scrambled letters to form a
word/s related to users of
accounting information. Put
those terms in their respective
group of users and answer the
questions that follows.
REFLECTION
• Rate yourself . For each parameter , please put a check on the
emoticon that shows how much you understand the lesson
• 1. I know who uses accounting information.
• 2. I can distinguish the type of information needed by internal
users.
• 3. I can distinguish the type of information needed by external
users.
• 4. I can explain how accounting provides important data to
internal users.
• 5. I can determine the accounting information needed by
investors and creditors.

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