Internal and External Users of Accounting Information


Internal and External Users of Accounting Information

Users of accounting information fall into two broad categories; internal users and external users. External users are those who are external to the day to day operations of the business. Internal users are, on the other hand, those involved in the day to day operations of a business. Bankers, Investors and Suppliers are examples of external users while managers of an entity at all levels are internal users.

External users obtain accounting information on a business through published financial statements. The principal published financial statements are:

a)      Income Statement (Profit and Loss Account) which shows whether the business is earning profits or sustaining losses.
b)     Balance Sheet which shows the value of assets owned by the business, and how the assets have been financed through debts and owner's equity.
c)      Cash Flow Statement which shows the changes that have taken place in the cash position of the firm, in terms of how cash has been generated  and how it has been utilised during the accounting period.

Internal users receive information in excess to what is contained in published financial reports. Examples of these are reports on productivity levels, labour turnover, spoilage and damages, etc. The accounting discipline has evolved specializations along the information needs of external and internal users. The branch of accounting that focuses on information needs of internal users is known as Management Accounting while the branch that focuses on providing information to external users is known as Financial Accounting.

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