Internal and External Users of Accounting Data
Internal and External Users of Accounting Data
Accounting data is important to the many stakeholders of a business. By analyzing the data, stakeholders can determine many things about a business, including its profitability, current cash position, whether it might be able to repay loans, and much more. Users of accounting data fall into two categories: internal users, and external users.
Internal users of accounting data are actually employed within the business, and use the data to “plan, organize, and run [the] business” (Kimmel, Weygandt, & Kieso, 2011, p.5). Most, if not all, departments in a business use the data to make daily, short term, and long term goals and decisions for their area within the company. A finance officer, for example, will use information about the company’s cash standing to advise his manager on whether or not the company is in a good position to borrow money from the bank, to issue new stock, or to pay dividends. A marketing officer will use income statements to determine whether a recent marketing campaign helped increase the company’s profits, and a cash flow statement to decide whether they can afford the expenses needed to implement a proposed marketing technique. Production managers might look at balance sheets to see how inventory has changed from one period to the next while planning which products the company should manufacture in the upcoming month. Company officers, such as the CEO (chief executive officer), can use a balance sheet to get a snapshot of the company’s assets, liabilities, and shareholder equity on a given day. He could use the information to determine the business’s working capital, and its current asset to liability ratio. This might help him decide if the business is in a good position to borrow money, and also to repay it. Finally, even the Human Resources department can utilize accounting data to determine if the company can absorb additional health insurance premiums in the
Accounting data is important to the many stakeholders of a business. By analyzing the data, stakeholders can determine many things about a business, including its profitability, current cash position, whether it might be able to repay loans, and much more. Users of accounting data fall into two categories: internal users, and external users.
Internal users of accounting data are actually employed within the business, and use the data to “plan, organize, and run [the] business” (Kimmel, Weygandt, & Kieso, 2011, p.5). Most, if not all, departments in a business use the data to make daily, short term, and long term goals and decisions for their area within the company. A finance officer, for example, will use information about the company’s cash standing to advise his manager on whether or not the company is in a good position to borrow money from the bank, to issue new stock, or to pay dividends. A marketing officer will use income statements to determine whether a recent marketing campaign helped increase the company’s profits, and a cash flow statement to decide whether they can afford the expenses needed to implement a proposed marketing technique. Production managers might look at balance sheets to see how inventory has changed from one period to the next while planning which products the company should manufacture in the upcoming month. Company officers, such as the CEO (chief executive officer), can use a balance sheet to get a snapshot of the company’s assets, liabilities, and shareholder equity on a given day. He could use the information to determine the business’s working capital, and its current asset to liability ratio. This might help him decide if the business is in a good position to borrow money, and also to repay it. Finally, even the Human Resources department can utilize accounting data to determine if the company can absorb additional health insurance premiums in the