Accounting Information for Internal and External Users

Accounting is the methodical and full recording of financial transactions relating to a business, and it also denotes to the procedure of briefing, examining and evaluating these transactions to cross checking agencies and tax collection agencies. Accounting is one of the key purposes for nearly any company. It may be done by an auditor and accountant at small businesses or by substantial finance subdivisions with lots of employee’s at

Accounting is a product of many estimates and judgments. It is essentially a rear-view mirror, looking back at what has happened. To add to the problem the view changes with each new accounting period.

Which of the following would not be considered an external user of accounting data for the Julian Company?

These different stakeholders consider financial information available to them from slightly different perspectives to meet their own needs (Carlon 2016).

I suspect that most of us can view and appreciate most sports such as baseball, football, and basketball. What if you were to view a Cricket World Cup game? If you didn’t know the rules you probably would not have much fun. The same happens in business if you don’t understand its language – Accounting. What rules impact a business’ Accounting Information System? What types of compliance is required?

The purpose of accounting is to record the financial information, such as transactions and performance, related to a business. The accounting profession has been in existence for as long as business transactions have occurred. It wasn’t until 1494, however, when Luca Pacioli, a Venetian merchant, wrote Summa de Arithmetica, Geometrio, Proportioni et Proportionalita. His writings described a two-entry system of debits and credits, which became the basis for modern accounting systems. Three centuries later, with the emergence of the Industrial Revolution and the development of corporations, the profession of being an accountant became a necessity to keep track of the rising costs and cash flows. As a result, the American Association of Public

 Financial accounting is an information-processing system that generates general-purpose reports of financial operations (income statement and statement of cash flows) and financial position (balance sheet) for an organization. It is used by decision makers inside and outside the firm, such as security investors, analysts, and lenders. Adding to this external orientation are external financial reporting requirements determined by law and generally accepted accounting principles.

Internal Controls are to be an integral part of any organization's financial and business policies and procedures. Internal controls consists of all the measures taken by the organization for the purpose of; (1) protecting its resources against waste, fraud, and inefficiency; (2) ensuring accuracy and reliability in accounting and operating data; (3) securing compliance with the policies of the organization; and (4) evaluating the level of performance in all organizational units of the organization. Internal controls are simply good business practices (Strauss, 2003). And, since internal controls can have many more meanings in the world of accounting, the more we understand what were dealing with, the better we can analyze internal

19. The accounting assumption that requires every business to be accounted for separately from other business entities, including its owner or owners is known as the:

Feedback: Internal users of accounting information systems include boards of directors, chief executive officers, business unit managers, plant managers, store managers, and line supervisors. LO 4

Secondly, the claim made by ‘free market’ perspective to treat accounting information as other normal goods should be rejected because accounting information are unlike normal goods such as bread or house. It is a public good because the use of it by one investor does not prevent the usage of others (Hendriksen & Breda 1992, p.247). As non-investors have right to use the accounting information such as income statement and balance sheet as much as investors, investors will not agree to pay for the financial reports because others will become free-rider; thus, this prevent the function of normal pricing system of accounting information. As no income is received by producers of financial reports, they will not willing to produce it or will underproduce it so ‘free-market’ perspective is not applicable. Under this circumstance, Demski and Feltham (cited in Deegan 2009, p.65) states that for public good like accounting information, a more collective approach to its production is more desirable. This can be achieved by legislatively regulating the productions of accounting information so companies will produce the accounting information to meet the demands of external users and thus ensuring efficient capital market.

Financial accounting is a crucial process for any successful business. Atrill and McLaney, 2013 define financial accounting as: “the identification, measurement and communication of accounting information for external users (those users other than the managers of the business).”

The presence of an external auditor allows creditors, investors or bankers to use financial statements that have been prepared with confidence. Although it does not guarantee the accuracy of a financial statement, it provides users with some reassurance that a company’s financial statements give a true and fair view of its financial position and its business operations. It also provides credibility, where in business, is a major asset. With credibility, the willingness of investors, bankers and others to relate and undertake business projects with a company increases. Credibility is also important to build positive reputations.

Accounting can be defined in a number of ways, but I chose the book definition, which is; Accounting is an information system that provides reports to stakeholders about the economic activities and condition of business. The person in charge of accounting is called the accountant. The accountant is typically required to follow a set of rules and regulations. These rules and regulations are called the General Accepted Accounting Principles. Throughout these next few paragraphs, I will be giving you the history and evolution of accounting, and I will be explaining who the stakeholders are and what type of information they require, and I will be explaining the role of accounting in business. There will be many examples and type of business

Ÿ The information should always give a complete picture of the state of the company whether the information is good or bad. Financial accounting is concerned with reporting information to external and internal users of financial statements. External users are people not involved with the day-to-day running of the company. Internal users are people who are involved.