Question

Why would the following user group need accounting information related to a business? Support your answers with related example

1	Suppliers of goods or service
2	Employees
3	lenders
4	owner/s
5	Government
6	Investor/s

Write not less than 350 words

Answer 1

All these mentioned groups are users of accounting. They need accounting information of a business for various reasons which are given below:-

1. Suppliers of Goods/Services

The suppliers of goods and/or services need accounting information of a business to know their credit worthiness. This helps them know the health of its customer (in this case, the business itself) and see whether or not they are in a position to pay back the credit due. Accounting information also helps the suppliers decide whether to give out easy credit to its customer or not. Basically, the suppliers need to check if the business (its customer) is in good health or not as this also affects the suppliers growth.

2. Employees

Employees fall under Internal Users of Accounting. They are interested in accounting information of the business as the financial health could impact their income and job security. It helps them get a better understanding as to how the business operates. Apart from this, increase in ESOP (Employee Stock Option Plan) has also driven the interest of employees in the accounting information of the business. In addition, potential employees are also interested to know about the financial health of a business they might be willing to join in future.

3. Lenders

Lenders offer credit facilities to businesses and are highly interested in accounting information as this helps them know the credit worthiness of the business (i.e. whether they'll be able to pay back the loan or not). If a business is not financially healthy, it is very difficult for it to get a loan from the lenders, or even if they get one, it'll be at a very high interest rate as the lenders are taking a risk by giving out a loan to a financially weak business.

4. Owners

Another internal user of accounting, owners need financial information because they need to know how well their business is performing and whether or not it is performing as per the expectations. It also gives them an idea about the risks in the functioning of the business and see how stable the business is. This helps them decide whether to invest further in the business or use the funds elsewhere. Accounting information also helps the owners know the profitability of the business.

5. Government

As we see, there are various users of accounting information and there has to be someone to protect the interests of these stakeholders. This is where the government comes into the picture. The government makes sure that the business complies with the pre-defined standards and regulations and gives out correct information so as to protect the interest of these users of accounting. Government also defines various aspects such as sales revenue and profitability to define the size of the business, thus, making it interested in the accounting information of the business.

6. Investors

What do investors do? They invest money in a business and earn money from that investment. This is the reason why they are interested in the financial reports and information given out by businesses as this helps them know how is their investment performing. This also helps them take a decision regarding whether they should increase, hold, decrease or totally withdraw their investment from the business.