Accounting is very much essential for calculating profit and loss and to prepare the balance sheets. Generally, their are two types of users of accounting information in the society i.e. internal users and external users. Let us study in detail that who are the internal users and who are the external users in an accounting information.
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:
Mistakes or errors are common in the process of accounting. There are different types of accounting errors.
Effective communication skills are very much required in every domain of the business and the same goes for accounting. If an accountant possess such skills then only he will be able to communicate his ideas and financial information to other employees of the company..
Income statement is one of the five (as per U.S. GAAP) main financial statements, the other four financial statements are: Balance Sheet, Statement of Cash Flows, Statement of Comprehensive Income and Statement of Changes in Stockholder’s Equity..