Which of the following is considered an external user of the companys accounting data?

If you want to know how a business is performing, financial statements provide the answer. Is there enough cash in the bank to pay the bills? Is the company making money? Have the assets been swallowed up by debt? The users of financial statements such as the balance sheet include people both inside and outside your company.

Inhaltsverzeichnis Show

Meet the Statements
Internal Users of Financial Statements
External User Statements
External users' statements have to follow GAAP or similar accounting frameworks. That doesn't mean they all want the same information. Investors may be most interested in your financial performance, while lenders might focus on your current debt load.
Users of Accounting Information
Internal Users
External Users
Government/IRS
Important Points to Remember
Who are external users of a company's accounting data?
Which of the following is external users of accounting information?
What is external user in financial accounting?
Which of the following are considered external users of financial statements?

Meet the Statements

Because so many people rely on financial statements for information, federal regulation, and generally accepted accounting principles (GAAP) have standardized the formats. One big difference between internal and external users' statements is that financial statements for external use must fit these standard formats. If internal users such as your company's management or owners want information, you can use any format that works for them, or you.

The essential financial statements are:

The income statement, which shows how much revenue you took in, and how much money you spent. It includes money earned but not paid to you, and money you owe but haven't paid. This statement provides a sense of how profitable the business is.
The cash flow statement, which looks at how much money changes hands. This knowledge is important because you can have a profitable company that can't pay its bills if customers don't pay quickly enough. If you operate on a cash basis, cash flow equals income.
The balance sheet is like an equation with one side of the equal sign comprised of your total assets, and the other, your total debts and the owners' equity. This statement shows how much the company is worth over and above the debt load.
The supplemental notes cover various technical points and details that give perspective on the big three.

Internal Users of Financial Statements

Internal users of financial statements fall into three main groups: management, owners and, sometimes, employees. In many small businesses, the owners are the managers. The key users of financial information in a partnership, for instance, are usually the partners themselves.

Managers are the primary users of financial statements because they need the information to do their jobs. They have to make decisions such as whether to add debt or how to maintain cash flow. Making those calls requires detailed knowledge about company finances.
Owners can use the statements to evaluate whether their investment is safe and whether the company is providing an acceptable return on their money.
Some employees, such as accountants or the finance department, are users of financial statements because it's part of their job. If other employees have access to the information, it can help them judge whether the firm is in good shape or if it's time to jump ship.

Because those in management have to make decisions for the business, they need different information than other internal users of financial statements. For example, they may want income statements for each product line or store rather than for the business as a whole.

External User Statements

If someone wants to know about your finances but isn't part of your business, they're external users of financial statements. They fall into many more categories than internal users of financial statements:

Lenders. If you want money from the bank, they're going to want to see your financial data first.
Regulators. If you're a publicly traded corporation, you'll have to send the Securities and Exchange Commission copies of your statements.
Outside investors. Like lenders, stockholders and venture capitalists will want to review your statements before they write you a check.
Creditors. If you owe money or you're slow paying your bills, your creditors may want to double-check your statements. Suppliers may review your financial health before deciding to extend credit.
Unions. If your cash flow and income are steady, the union may decide you can offer a more generous employment package.
Publicly traded companies' financial statements are public information. Anyone who takes an interest in your business may become an external user. That could include customers, competitors and the media.

External users' statements have to follow GAAP or similar accounting frameworks. That doesn't mean they all want the same information. Investors may be most interested in your financial performance, while lenders might focus on your current debt load.

Last updated
Save as PDF

Page ID62166

Users of Accounting Information

The accounting process provides financial data for a broad range of individuals whose objectives in studying the data vary widely. Three primary users of accounting information were previously identified, internal users, external users, and government/IRS. Each group uses accounting information differently and requires the information to be presented differently.

Internal Users

Accounting supplies managers and owners with significant financial data that is useful for decision making. This type of accounting is generally referred to as managerial accounting.

Some of the ways internal users employ accounting information include the following:

Assessing how management has discharged its responsibility for protecting and managing the company’s resources
Shaping decisions about when to borrow or invest company resources
Shaping decisions about expansion or downsizing

External Users

Typically called financial accounting, the record of a business’ financial history for use by external entities is used for many purposes. The external users of accounting information fall into six groups; each has different interests in the company and wants answers to unique questions. The groups and some of their possible questions are:

Owners and prospective owners. Has the company earned satisfactory income on its total investment? Should an investment be made in this company? Should the present investment be increased, decreased, or retained at the same level? Can the company install costly pollution control equipment and still be profitable?
Creditors and lenders. Should a loan be granted to the company? Will the company be able to pay its debts as they become due?
Employees and their unions. Does the company have the ability to pay increased wages? Is the company financially able to provide long-term employment for its workforce?
Customers. Does the company offer useful products at fair prices? Will the company survive long enough to honor its product warranties?
Governmental units. Is the company, such as a local public utility, charging a fair rate for its services?
General public. Is the company providing useful products and gainful employment for citizens without causing serious environmental problems?

Some of the ways external users employ accounting information include the following:

Stockholders have the right to know how a company is managing its investments
Federal and State Governments require tax returns and other documents often prepared by accountants
Banks or lending institutions may use accounting information to guide decisions such as whether to lend or how much to lend a business
Investors will also use accounting information to guide investment decisions

General-purpose financial statements provide much of the information needed by external users of financial accounting. These financial statements are formal reports providing information on a company’s financial position, cash inflows and outflows, and the results of operations. Many companies publish these statements in annual reports, also known as a 10-K or a 10-Q (quarterly report). The annual report contains the independent auditor’s opinion as to the fairness of the financial statements, as well as information about the company’s activities, products, and plans. Typically, the best place to find these reports for a public company can be on their website under the Investor relations section. Financial statements used by external entities are prepared using generally accepted accounting principles, or GAAP. We will discuss the language of GAAP further in later sections.

Government/IRS

Government agencies that track and use taxes are interested in the financial story of a business. They want to know whether the business is paying taxes according to current tax laws. The language in which tax-related financial statements are prepared is called IRC or Internal Revenue Code. Tax preparation will be outside the scope of this course.

Important Points to Remember

Internal users are people within a business organization who use financial information. Examples of internal users are owners, managers, and employees.
External users are people outside the business entity (organization) who use accounting information. Examples of external users are suppliers, banks, customers, investors, potential investors, and tax authorities.

Who are external users of a company's accounting data?

External users are people outside the business entity (organization) who use accounting information. Examples of external users are suppliers, banks, customers, investors, potential investors, and tax authorities.

Which of the following is external users of accounting information?

External users of information include present and potential Investors (shareholders), Creditors (Banks and other Financial Institutions, Debenture holders and other Lenders), Tax Authorities, Regulatory Agencies (Department of Company Affairs, Registrar of Companies), Securities Exchange Board of India, Labour Unions, ...