USERS OF ACCOUNTING INFORMATION

Most of the material in this book describes business situations, but the principles of accounting apply to the financial considerations of individuals as well. The following sections discuss the range of people and groups who use accounting information.

Individuals. People use accounting information in day-to-day affairs to man­age their bank accounts, to evaluate job prospects, to make investments, and to decide whether to rent or to buy a house.

Businesses. Managers of businesses use accounting information to set goals for their organisations, to evaluate their progress toward those goals, and to take corrective action if necessary. Decisions based on accounting information may include which building and equipment to purchase, how much merchandise inventory to keep on hand, and how much cash to borrow.

Investors and Creditors. Investors provide the money that businesses need to begin operations. To decide whether to help start a new venture, potential inves­tors evaluate what income they can reasonably expect on their investment. This means analysing the financial statements of the new business. Those people who do invest monitor the progress of the business by analysing the company's finan­cial statements and by keeping up with its developments in the business press. Before making a loan, potential lenders determine the borrower's ability to meet scheduled payments. This evaluation includes a projection of future opera­tions, which is based on accounting information.

Government Regulatory Agencies. Most organisations face government reg­ulation. Government regulation agencies base their regulatory activity in part on the accounting information they receive from firms.

Taxing Authorities. Local, state, and federal governments levy taxes on indi­viduals and businesses. The amount of the tax is figured using accounting infor­mation. Businesses determine their sales tax based on their accounting records that show how much they have sold. Individuals and businesses compute their income tax based on how much money their records show they have earned.

Non-profit Organisations. Non-profit organisations — such as churches, most hospitals, government agencies, and colleges, which operate for purposes other than to earn a profit—use accounting information in much the same way that profit-oriented businesses do. Both profit and non-profit organisations deal with budgets, payrolls, rent payments, and the like—all from the accounting system.

Other users. Employees and labour unions may make wage demands based on the accounting information that shows their employer's reported income. Con­sumer groups and the general public are also interested in the amount of income that businesses earn.

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