Importance of Accounting Information

Importance of Accounting Information

Accounting:

Accounting is called the language of business. It is a process of recording, summarizing, reporting and analyzing the economic or financial transaction.

Accounting Information:

It is very important to report and communicate accounting information in an effective and efficient manner because it helps in making informed business decisions.

Users of Accounting Information:

Below mentioned are two types of users of accounting information, who use accounting information to make informed decision.

1. Internal Users of Financial Information

2. External Users of Financial Information

1. Internal Users:

Internal users are primary users, following are some example of internal users;

a) Organizational Management:

It is very common user of accounting information, management of organization uses the information check the efficiency of business and to make batter decision in best interest of the organization, they also use forecasted information to achieve their Budgeted target or desired organizational goal and objectives. Or to protect the organization from sessional variations and any adverse movement in environment.

b) Employees:

Mostly employees use this information to analyze the Going Concern, profitability and Existing and forecasted position of an organization and its effect on their futures.

c) Owners:

Owners normally use the accounting information to measure the profitability and efficiency of business and to assess the existing position of the organization and to assess the forecasted results are align with owner interest.

2. External Users:

External users are secondary users of accounting information, following are some examples of external users.

a) Creditors:

Determination of organization’s credit worth is very important, it reflects the financial health of the organization. It includes vendors and lenders of finance for example banks.

b) Investors/stock holders:

Every investor will definitely analyze the financial position of the organization before investing anything in the organization.

c) Tax Authorities:

Tax Authorities use this accounting information to check the tax liability of the organization and tax paid through tax returns.

d) Customers:

Customers also check the financial position of the organization to ensure the future supply.

e) Regulatory Authorities:

Regulatory authorities monitors the accounting information declared by the organization, whether it is in accordance with law / rules and regulations or not.

Types of Accounting Information:

There are three major types of accounting information.

1. Financial Accounting Information

2. Managerial Accounting Information

3. Tax Accounting Information

1. Financial Accounting Information: Financial accounting information is also called financial reporting, it includes financial information such as financial statements (Balance sheet, Income statement and statement of cash flows, statement of changes in equities and notes to the accounts) for external use mostly. It shows the financial health of the organization. It usually contain the detailed knowledge of accounting records as per the standards such Generally Accepted Accounting Principles (GAAP) or International Accounting Standards & International Financial Reporting Standards (IAS & IFRS’s).

2. Managerial Accounting Information:

Managerial accounting information is the information used by the managers to Budget, control, direct and manage the operational activities of the organization to achieve the organizational objective.

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