Question:
Discuss the list the various user groups and using information from the literature, identify the three user groups which you think are the most important, explaining why they require financial information and why they are more important than the other groups?
Answer:
Various user groups of accounting
Accounting is the art of recording, classifying and summarizing in a systematic form the various financial transactions that occur within an organization. Various financial transactions are occurring continuously in the business. These financial transactions need to be recorded and summarized in a systematic form so that the respective users of this information may utilize these reports. The main users of financial information are the managers, investors, shareholders, creditors and banks. These entities make various decisions based on the financial statements (Barth 2015).
Three user groups of financial information which are important
Accounting is necessary for recording various financial transactions and generating financial reports at the end of the financial period. Money is the life blood of the business. It is the most important factor in any business. Hence, recording the monetary transactions is very vital. Various groups of users (Entwistle 2015) use the reports that are generated at the end of the month. They make many important decisions based on these reports. So, these reports are crucial for them. Now among the different users of financial information, three of them are the most important. They are discussed one by one:
- Shareholders: Shareholders are the owners of the business. The Equity shareholders invest money in the business in the form of equity capital (Whittington 2014). They invest money to get a suitable amount of return. This return is obtained from annual profit of the business. Since they are the actual owners of the business, they need to know about the financial status of the business at regular intervals. They would want to know about the financial performance of the business so that they can anticipate the amount of the return. For this reason, shareholders are important users of accounting reports.
- Management: The management uses the financial statements for taking important decisions regarding the organization. These decisions are valuable for the general well being and goal reaching capability of the organization. The management analyses the financial performance of the organization and takes decisions to improve it in the next financial period.
- Banks: Banks and other financial institutions also use these informations to make various decisions. Banks provide capital to the business in the form of loan. By analyzing the financial information, they can know about the credit worthiness of the organization (Nobles 2015)
So these are the three main users of financial information.
References
Barth M. (2015). Financial Accounting Research Practice and Financial Accountability. Abacus 51(4), pp.499-510.
Entwistle G. (2015). Reflections on Teaching Financial Statement Analysis. Accounting Education 24(6) pp.555-558.
Nobles T. (2015). Horngren’s financial & managerial accounting. [Place of publication not identified]: Prentice Hall.
Whittington G. (2014). Book review: Financial Accounting and Equity Markets: The Selected Essays of Philip Brown. Accounting History, 19(1-2), pp.281-283.
