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Paper 1 Principles and Practices of Accounting Theoretical Framework 1.9
b) External users: These users are outsiders to the organisation such as government,
regulatory authorities, investors, banks, tax authorities, etc.
Various users of accounting can be classified as follows:
Investors: Investors are the persons who bring in capital into the business. Hence,
investors are the owners and they need information about the business performance
and its financial position to make profound decisions.
Employees: Human resources is the most important asset of the organisation as they
are directly realted to the business productivity and growth. Therefore, they want to
know the entity’s stability, continuity and growth and also the ability of the entity to
provide remuneration, retirement and other benefits and employement opportunities.
Lenders: They are the persons who provide long-term or short-term financing to the
business. Any person who provides funds would be interested in knowing the credi-
bility of the business, whether the money funded will be repaid promptly on due date
along with interest thereof.
Suppliers and Creditors: To decide upon the credit policy, rates to be charged, etc.
the creditors/supplier are also interested in knowing the ability of the entity to repay
debts.
Customers: Interested in profitability and growth of the entity, especially, when
their functioning is more or less dependent on the supply of goods.
Government and Their Agencies: They regulate the functioning of business in the
interest of public good, control prices, allocate scarce resources between the com-
peting entities, charge taxes, etc. and have continued interest in the business entity.
Public: As they make substantial contribution to the local economy in many ways
including the number of people employed and their patronage to the local supplier.
Management: Management is also interested in the accounts of the entity to deter-
mine the effects of various decisions taken by them during the course of rendering
their services. This also enables them to make future decisions.
Rapid Fire Q&A
Questions Answers
State True or False
1. Financial statements presented to the 1. False. Financial statements are pre-
internal users contain key information sented in summarised manner to the
regarding assets, liabilities and cap- external users. Detailed presention of
ital which are summarised in a logical financial information is done for inter-
manner that helps them in decision- nal users to make managerial decisions.
making.
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