The purpose of double entry bookkeeping is to classify and record financial transactions in order to produce summarized accounting information. The next question is obviously who are the users of accounting information, and what do they use it for.
Main Users of Accounting Information
In practice the users of accounting information are varied and numerous and to a certain extent depend on the type of business involved. Normally the users of accounting information will include the following:
- Business owners: Use accounting information to assess the performance of their business and its managers.
- Investors: Use financial information to decide whether or not to buy, hold, or sell an investment in a business. They are particularly interested in the return they make on their investment and the dividends paid by the business.
- Managers: Managers use accounting information for decision making, and to assess the performance of the business.
- Employees: Employees are stakeholders in the business and want to know their employer or potential employer is financially stable, and is able to continue to provide remuneration, employment opportunities, and retirement benefits
- Lenders: Use business financial information to decide whether or not to lend, and will play close attention to the ability of the business to make loan and interest repayments.
- Vendors and Suppliers: Are users of accounting information as they need to decide whether to trade with the business, and in particular whether or not to provide credit terms. They are concerned with the ability of a business to make payment of invoices on the due dates
- Customers: Use the accounting information to assess the financial stability of the business when deciding whether it will be a reliable supplier to place orders with.
- Tax authorities: Use the financial statements of the business to calculate any tax due.
- Competitors: Competitors will make use of publicly available accounting information in order to assess the level of competition they face.
- Government: Governments are users of accounting information as they collect data to provide statistics on a variety of factors such as import and export data.
- Public: The public use corporate financial information, particularly the annual financial statements, to gather information about a business and its activities during the year.
About the Author
Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.