Effective communication is important for any business that deals with employees and outsiders, such as vendors and clients. Because accounting is an intrinsic part of any business, good communication skills are as vital in this area as they are in any other. Important financial tasks such as budget preparation and reporting, bill paying, payroll and recording income need to be presented properly to management and others to be useful and meaningful. Show
Help Management Make Good DecisionsThe most important use of accounting data is to communicate meaningful information, allowing management to make good decisions. To be effective, accounting information must make sense and be understood.; or else, it is just a list of numbers with no real significance. Many businesses use templates for internal reports to communicate information in a matter that is familiar and easy to use by management. For example, departments may get "actual versus budget" reports every month, using the same format, facilitating understanding and analysis. Show Investors How the Business is DoingAnother important user of accounting information is the investor, who wants to know how a business is doing financially. Usually this type of information is communicated through standard reports, such as balance sheets and income statements, compiled using generally accepted accounting principles. A balance sheet shows assets, including cash, liabilities and owner's equity. An income statement presents income and expenses of a business at a certain point in time. Both statements are compiled the same way every month or period, allowing for comparability and analysis, from an investor's point of view. Many investors may also want to see cash flow statements with information about money coming in and going out in a business. They may also request special reporting. Prove That You've Paid Your TaxesAccounting information needs to be communicated properly to government entities in the case of taxes. For example, Texas requires sales and use tax on certain items and accounting information must be presented a certain way to be significant. Another example of government communication is the annual tax return with the Internal Revenue Service, where information is shown following specific rules and regulations. Communication regarding financial matters to government should be done in writing as much as possible. Talking about accounting numbers on the phone can create confusion and should be avoided as much as possible. Show that You're Good for a LoanBanks may want to be appraised of financial situation of businesses, making communication of accounting matters a priority in many firms. In case of bank loans, there may be periodic reports using accounting information. Banks are usually interested in cash flows and may require special reporting regarding a firm's liquidity, including short-term accounts receivables and payables. All this information must be communicated clearly to the bank, or the business may not get the loan. Things to ConsiderThe best way to communicate any accounting information is to do it in writing and in a report format with line descriptions on the left side of the pages, columns headed by a date or description, and a report title. Accounting reports are for a specific period or date. It's rare to see an accounting report with only numbers on it and no description or dates. Make sure that any necessary schedules or backup documentation is available in case of questions. To proper communicate accounting information, reports should be organized with the most summarized version on top and others following it at the bottom. Be sure all reports are stapled with no pages flying around. Accounting is said as the language of business. It is useful for
communicating the financial results of the entity to various stakeholders by way of financial statements. As you are aware that one of the main objectives of accounting is to provide information to Users of financial information for rational decision making. Generally, users of accounting information are classified into two types:
Let’s understand all the Users of accounting information in detail and their information requirements.
Internal users are also known as Primary users of accounting information. The information requirements of internal users are served by management accounting for effective decision making. 3 types of Internal users and their information requirements are as follows:- (i) Owners or stockholders Owners provide capital to the business with the primary objective of earning rewards by way of profits and dividends. They need information about the financial position of business such as its current earnings, ability to survive, growth potential, and dividend payouts. Owners need the information to assess their investments and take rational decisions about future strategies to buy, hold, or sell their stocks. In a non-corporate sector such as sole proprietorship, partnerships. There is no separation between ownership and management but still, there is an information need from the owner to take decisions whether to continue or shut down the business. (ii) Management Management is interested in accounting information for taking various managerial decisions regularly. Based on accounting information, Management evaluates the impacts of various managerial decisions take in past on the financial position of the entity and helps in deciding the future action plans. Based on accounting information management not only take the financial decision but also decides the allocation of various resources such as workers, stocks, etc. (iii) Employees Employees are also interested in accounting information of organizations. Employees belonging to the accounting and finance department need accounting information for the preparation of financial statements, audits, and communication of financial results to stakeholders. Employees belonging to other departments are interested to know the growth, stability, and continuity of organization as the growth of employee are directly related to organizations growth. Accounting information also helps employees to make a rational decision about the subscription of employee stock option plans and stocks during Initial public offers. External Users of Accounting InformationExternal Users can also be termed as outsiders or Secondary users. The information requirements of these users are mainly fulfilled by financial accounting. Financial accounting is one of the sub-field of accounting concerned with the preparation of financial statements and reports. External users are depended on these financial reports for effective decision making. 6 Types of external users are discussed as under along with their information needs:- (i) Lenders Lenders are interested to know the financial position of the entity to determine its ability to repay loan and principal whenever it becomes due. Lenders use financial statements to determine the creditworthiness of their prospective borrowers based on their liquidity and solvency position before sanctioning of loans to them. Nowadays, Lenders also conduct an independent audit at periodical intervals to determine the financial health of borrowers. (ii) Suppliers or Trade partners Suppliers are interested to know whether the entity will be able to honor its dues on a timely basis. These will help suppliers to determine the credit policies, rates to be charged and discounts to be offered to there trading partners. Sometimes suppliers are completely dependent on the large entity for the survival of their business. These suppliers are not only interested in the liquidity position of their trading partner but also their ability to sustain the competitions and future growth potentials. Suppose, small suppliers, supply their products to large entities, if a large entity shuts down there operations it will also impact small suppliers whose survival was completely dependent on these large entities. (iii) Prospective Investors Prospective investors use accounting information published by the entity to determine whether to invest in the organization or not. Based on the financial position of the entity prospective investors can also determine the amount of money to invest, the appropriate time for investment and expected returns, etc. (iv) Customers Customers can be bifurcated into two types: – End-users and Manufacturers/Producers End users are generally not interested in the financial position of the entity. They are concerned about the availability of products on a timely basis. But, Manufacturers or producers are concerned about the profitability and stability of its suppliers because some manufacturers are completely dependent on one supplier for their raw materials and timely supply of inputs is essential for manufacturers to perform their operations. For example: – A company produces ink used by pen manufacturers and supplies ink on 30 days credits. If all of the sudden ink producing company shuts its operations and unable to supply ink to its customers (i.e. Pen manufacturers) will be in a state of trouble. (v) Government and Regulatory agencies Government and various regulatory agencies regulate the functions of business enterprises by creation and amendment of laws, rules, and regulations, the imposition of taxes and controlling prices, etc. Accounting information published by business entities is continuously monitored by government agencies to check whether entities are performing their operations in compliance with prevailing laws and regulations, Statutory payments are made on a timely basis or not. This accounting information is also used by tax agencies as a base for performing tax assessments. (vi) General Public The public at large is also interested to know the information of business enterprises for the following purposes:-
 Hope you have found the above article useful in case of any doubts, suggestions, or queries please let us know in the comment section below or connect with us on Twitter. How is accounting information communicated?Accounting information is communicated to the different users of financial information using financial statements. The users of the financial information all have an interest in the business and rely on these financial statements to provide key information on the status and performance of the business.
Who uses accounting information the most?The accounting process provides financial data for a broad range of individuals whose objectives in studying the data vary widely. There are three primary users of accounting information: internal users, external users, and the government (which is a specific form of an external user).
What are the main users of accounting information?The public, the government and its agencies, management, employees, lenders, suppliers, and other creditors in the business world are among the users of accounting information.
What is an internal user?Definition: An internal user is a person inside or an organization that helps run its operations and uses the company's financial information to make decisions.
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