Accounting is called the language of business because many people from within and outside the organization use accounting information for making economic and financial decisions. Accounting information is useful in all types of organizations for example a sole proprietorship and partnership business, a corporation, a not-for-profit organization, and even a government agency. The survival and growth of an organization depend largely on supplying effective accounting information to internal and external users. The size of an organization determines the appropriate volume and complexity of accounting information for example, managerial decisions in such areas as purchasing, production, hiring, borrowing, and investment.
Internal Users of Accounting Information System
Internal users of accounting information work for the organization. They usually have some managerial or supervisory responsibilities in a line or staff functions. Production or marketing are typical line functions. Staff functions include activities such as accounting, data processing, and planning. A production foreman, a line supervisor, a plant manager, a division manager, and a production vice president are examples of internal users. The types of information used people in an organization vary according to the function and level of the user.
External Users of Accounting Information System
Organizations supply accounting information to outsiders to meet regulatory needs, business needs and to inform others interested in the affairs of the organization. External users are interested in the accounting information of a firm for a variety of reasons. External users include present and potential stockholders, government agencies, banks, trade unions, and professional institutions. Government agencies commonly include tax authorities, and the capital market authorities Securities and Exchange Commission (SEC). Accounting information needs of government agencies are met by supplying information on special forms for each agency. The needs of other users are normally met by the corporation’s routine published reports which are published in the form of general purpose financial statements.