Textbook Problem

Describe how some of the primary groups of users use financial statements.

To determine

How some of the primary groups of users use financial statements.

Explanation of Solution

Accounting information tells us a numerical story of what is exactly going in the going. This information is required by almost every person either associated with the business or the one who wants to get associated with the business.

Users of Financial statements are all those who make use of the accounting information disclosed by the company.

There are 2 types of users of financial statements namely:

1. Internal users: are the users within an organization. They use the financial statements for decision making and making further policies, plans and for future course of actions.
2. External Users: are the users outside the organization. They are those who wants to get connected with the business in any form.

Example

Internal users: Employees, Owners, Management etc

External users: Investors, Suppliers, Lenders, Customers, Government and general Public.

All these are regarded as the primary users of financial statements.

Internal users like management make the use of the data to access the performance of employees and to access how efficiently the policies and plans have worked. If the plans have not worked as per standards then they can take corrective actions.

It helps them to make budgets, to access and define the costs etc.

External users like investors access the information to see whether the company is doing good and whether it would be fruitful to invest in this business.

Government uses this information to see whether the business is performing according to the law and to take taxes accordingly.