'Internal Users' Definition:
Internal users refer to the members of a company's management and other individuals who use financial information in running and managing the business. They work within the company and make decisions for the business.
- Definition of internal users
- Who are the internal users of accounting information?
- The need for accounting information
- External users
Who are the internal users of accounting information?
The internal users of accounting include all individuals within the company who utilize financial information in making decisions for the business. Internal users include all levels of management:
- Top level managers: includes executive officers such as CEO, CFO, COO, etc. They are in charge of the overall plans and policies of the organization. Officers are elected from the board of directors to run and oversee the company. Officers represent the board of directors and ultimately, all investors (stockholders) of the business.
- Middle level managers: departmental heads, branch managers, junior executives. They are in charge of executing the plans of the top management and oversee the performance of the division or department they are handling.
- Lower level managers: supervisors and foremen. They are the first-line managers who supervise the day-to-day operations of the business and directs workers and employees.
- In small businesses, especially in sole proprietorships and small partnerships, the owner/s participate in the operations of the business. These owners are considered as internal users since they have the role of managing the business.
The Need for Accounting Information
Accounting information is important in all levels of management. The top managers need information about the company's past performance to be able to make decisions about the future of the company. They need information to evaluate the result of their past decisions. The financial statements will show the company's performance and financial position and will guide them in coming up with decisions for the future.
Middle level managers also need accounting information in managing their department, division, or branch. For example, a branch manager may find that his branch has been on constant losses for the past months. Accounting is able to provide the facts and figures to determine the cause of such losses and ultimately, find a solution for them. The branch could decide on cutting down certain expenses, increasing selling prices, or whatever would be best based on given information.
Lower level managers oversee the day-to-day operations of the business. They make daily decisions. How many should the factory produce for the day? How many raw materials will be needed for the next day? Do we have enough inventory? These are some of the decisions that require accounting information.
External Users of Accounting Information
External users do not participate in the operations of the company. They do not make decisions for the business, however, they are interested in the company's financial information for some other purposes. External users include: banks and financial institutions, suppliers, customers, tax authorities and other government institutions, investors, and the general public.