Users of Accounting Information

Users of accounting information may be divided into two major categories: external users and internal users. External users are those groups of individuals who are not directly concerned with the day to day operations of the entity, but who are indirectly related to it. These users include: owners, lenders, suppliers, potential investors and creditors, employees, taxing authorities etc. Internal users include all levels of management personnel within an entity who are responsible for the planning and control of operations.

Several branches of accounting have evolved to meet the needs of these groups. Two of the most important branches have been identified as financial accounting and managerial accounting. Financial accounting systems are primarily designed to provide financial statements to external users for their decision processes, although internal users also have access to the statements and use them in many of their decisions. Managerial accounting systems are primarily designed to supplement the financial accounting information for internal users, thus assisting them in reaching certain operating decisions. As businesses have become more complex, the availability of relevant information provided on a timely basis has become highly important to both classes of users.

The Distinction between Accounting and Bookkeeping

Persons with little knowledge of accounting may also fail to understand the difference between accounting and bookkeeping. Bookkeeping means the recording of transactions, the record-making phase of accounting. The recording of transactions tends to be mechanical and repetitive; it is only a small part of the field of accounting and probably the simplest part. Accounting includes the design of accounting systems, preparation of financial statements, audits, cost studies, development of forecasts, income tax work, computer applications to accounting processes, and the analysis and interpretation of accounting information as an aid to making business decisions. A person might become a reasonably proficient bookkeeper in a few weeks or months, however, to become a professional accountant requires several years of study and experience.