It is helpful to categorize users of accounting information on the basis of their relationship to the organization. Internal users, primarily the managers of a company, are involved in the daily affairs of the business. All other groups are external users. • INTERNAL USERS The management of a company is in a position to obtain financial information in a way that best suits its needs. For example, if management of a Kellogg’s production facility center needs to know whether the plant’s revenues are enough to cover its operating costs, this information exists in the accounting system and can be reported. If the manager wants to find out if the monthly payroll is more or less than the budgeted amount, a report can be generated to provide the answer. Management accounting is the branch of accounting concerned with providing internal users (management) with information to facilitate planning and control. The ability to produce management accounting reports is limited only by the extent of the data available and the cost involved in generating the relevant information. • EXTERNAL USERS External users, those not directly involved in the operations of a business, need information that differs from that needed by internal users. In addition, the ability of external users to obtain the information is more limited. Without the day-to-day contact with the affairs of the business, outsiders must rely on the information presented to them by the management of the company. Certain external users such as the IRS require that information be presented in a very specific manner, and they have the authority of the law to ensure that they get the required information. Stockholders, bondholders, and other creditors must rely on financial statements for their information. Financial accounting is the branch of accounting concerned with communication with outsiders through financial statements. Both existing and potential stockholders need financial information about a business. If you currently own stock in any company, you need information that will aid in your decision either to continue to hold the stock or to sell it. If you are considering buying stock, you need financial information that will help in choosing among competing alternative investments. What has been the recent performance of the company in the stock market? What were its profits for the most recent year? How do these profits compare with those of the prior year? Did the company pay any dividends? One source for much of this information is the company’s financial statements. Before buying a bond in a company (remember you are lending money to the company), you need to feel comfortable that the company will be able to pay you the amount owed at maturity and the periodic interest payments. Financial statements can help you to decide whether to purchase a bond. Similarly, before lending money, a bank needs information that will help it determine the company’s ability to repay both the amount of the loan and interest. Classof1.com offers Accounting Assignment Help
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