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CH 7] Business 101 7-3

Figure 7.1 Users of Accounting Information

User Application

Owners and Stockholders Evaluate operations of the firm

Management Planning and control

Lenders, suppliers Evaluate credit ratings

Employees, union officials For use in contract negotiations

Potential investors To make sound investment decisions

Government agencies To evaluate tax obligations
To approve new issue of stocks and bonds

traded companies (refer to side note). Investors look over financial information to
validate stock values, consider investment decisions, review the past performance of
the company for continued investment.
Creditors will use financial information to evaluate credit applications and make
decisions regarding the worthiness of loan applications. For loans, historical financial
information is valid.
Managers are the most frequent users of accounting data. Reliable and current
information is the most valuable when deciding on asset allocation, capital expansion.
The most reliable information when making decisions about allocating a company’s
resources is through the development of budgets. Managers will also use accounting 7
information to compare business performance with anticipated projected expectations.
Publicly traded companies report earnings and anticipated earnings quarterly. When a
company under-performs on expected earnings, its stock can drop drastically.
The Internal Revenue Service and state tax officials use it to evaluate the
company's tax obligations for the year. Figure 7.1 identifies the major users of a firm's Note: For the purposes of
accounting information. labor negotiations Union
access to business records
Accounting and Bookkeeping of firms is restricted to only
People often mistakenly interchange the terms accounting and bookkeeping as publicly traded companies.
being synonymous. However, there is a difference. Unions are not allowed
access to the business
Bookkeeping is the clerical phase of accounting. A bookkeeper’s responsibility records of privately held
primarily involves accurately recording the business transactions of a firm. companies. Records of
Bookkeepers enter the financial information in form and substance that are valuable privately held companies are
for and usable by an accountant. Thus, accounting is a much broader area. Accountants restricted to their owners.

are responsible for developing systems that classify and summarize transactions, their
presentation in financial statements are the grist that managers use to determine
corporate direction and value.
Accountants devise the best method to accumulate, record and report financial
information for decision making; bookkeepers are trained in the largely mechanical
tasks of record keeping.

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