Accounting
Accounting is the systematically identifying, recording, classification, and summarising of financial transactions related to a business. Accounting is a very important function for almost every business. Without accounting, it is very hard to run a business.
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Accounting Information
Accounting information refers to financial data and reports that provide overall knowledge about the financial issues and performance of a business.
Users of Accounting Information
Accounting information is useful for both types of people who work within the organization and those who work outside of the organization. So, basically, there are two types of accounting users: internal users and external users.
Internal users:
Internal users are those who work within the organization. Such as owner, management, employee, internal auditors.
Owner:
The owner invests money or its equivalent in the business, which is called capital. The owner takes on risk. If the business performs well, the capital of the business will increase, and if the business performs poorly, the loss will also be borne by the owner. That's why the owner has an interest in accounting information.
Management:
In a business, management has to make many decisions, such as fixing the selling price, investment plans, where to invest, how much to invest, etc. There are many major decisions taken by management, so accounting information is useful for management in making these decisions.
Employee and Workers:
If a business performs better, it earns a profit, and workers or employees may receive an extra bonus. That's why they are interested in the company's financial information. Additionally, they want to know if their EPF (Employees' Provident Fund) and ESI (Employees' State Insurance) contributions are deposited correctly by the company.
External users:
External users are the individual who stay outside of the organization. Such as bank/ financial institution, investors, creditors, government, business partner, researchers, etc.
Bank/ Financial institution:
Banks/ Financial institution provide loans to businesses, which is why they want to know a company's financial information. They want to ensure the safe recovery of the loan they provided.
Investors and Potential investors:
Investors are those who have currently invested money in the organization, and potential investors are those who are considering buying shares of the business.
Investors don't have direct control over the business; management runs the business. So, before investing money in the organization, potential investors want to see the financial performance of the business.
Creditor:
creditor gives money or something on credit to the business, so they want to know if they will get their money back. That's why they want to see the creditworthiness of the business.
Government:
The government collects tax from business units based on their profits, which is why they want to see the financial reports of the business. Additionally, reviewing these reports makes it easier for the government to make informed decisions when creating policies.
Business partner:
A business partner is another external user of accounting information. They want to see the financial health, evaluate investment potential, and negotiate agreements.
Researchers:
Researchers generally want to see the financial reports of an organization for their research purposes.
They use accounting information for various purposes, such as:
Financial modeling: Developing predictive models using historical financial data.
Academic studies: Analyzing financial data to test hypotheses or validate theories.
Industry analysis: Examining financial trends and performance within a specific industry.
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