Generally, the users of accounting information in the society can be classified into two categories, which include the internal users and external users. Internal users refer to the people in the organization producing the accounting reports while the external users are the people, institutions and entities outside the organization’s boundaries who use the information for the purpose of decision-making.
Another definition of American Institute of Certified Public Accountants (AICPA) is that “Accounting is the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of financial character and interpreting the results thereof.”
Accounting entails recording, classifying and summarizing of business transactions. It is a process of identification, measurement and communication of economic information involving four interconnected phases. They are outlined herein:
At the outset, the first phase is meant to record the economic events or transactions -depending upon their occurrences, chronologically in the books of accounts - called journal. This process is known as journalizing. Next comes the phase of ledger-posting: It is the process by which all the transactions are synthesized account-wise so that the accumulated balance of each of those accounts can be determined. The process of ledger posting is vitally important, as it helps in ascertaining the net effect of various transactions during a given period. The subsequent stage is preparing the trial balance which involves the arrangement of all ledger accounts having been aggregated into debit and credit balances.
This activity enables to check and confirm whether the total of debits is equal to that of credits. Finally, comes the phase of preparing financial statements. This phase is meant for finalization of accounts by measuring profit & loss account and preparing Balance Sheet- at the end of accounting period.
There are many different users of accounting information and the users may be inside or outside the organization. Accounting information is economic information, as it relates to financial or economic activities of a business organization. There are so many people using the accounting information for so many diverse purposes, thus, the purpose of financial statements is to cater for the needs of the users that could lead them to make better financial decisions. The users may be classified into Internal and external users.
Internal users or Primary users of accounting information include:
External users or Secondary users of accounting information include:
Accounting is very much connected with our personal lives in so far as it is in respect of every business. We all with intent or unknowingly generate accounting ideas in a way when we plan what we will do with money.
Subsidiary books could be thought of as books of prime entry where transactions of a particular category are noted. Put simply, to avoid wasting time and energy, the transactions which are of similar character are recorded in separate books, they are called subsidiary books or subdivision of journal.