Decisions of external and internal users

• External users


  Interested in putting capital to earn profit<|>Make investment decisions based on appropriate use of equity, risks and returns
• Lenders


  Decide whether to extend credit based on creditworthiness, liquidity, solvency, and profitability
• Regulatory and tax authorities


  Decide whether to confirm compliance or impose penalties based on accuracy of reports and declarations, payment of taxes
• Customers


  Decide whether to buy goods or services based on stability and pace of production
• Suppliers


  Decide whether to supply and set a credit limit based on liquidity and capacity to pay obligations
• The public


  Make diverse decisions with varying interests based on information about the market, trade environment, and financial status of the nation
• Accounting information is produced and presented based on the specific needs of its users, who are grouped as internal users and external users
• Internal users


  Part of the reporting entity, utilize the accounting information to come up with useful decisions for the company
• Decisions by internal users

  • Management decisions (whether operations are efficient, budgeting, forecasting, analysis of management accounting reports, investment ventures, ensuring compliance with law)
  • Owner/shareholder decisions (monitoring investment and returns, assessing business performance and financial position)
  • Employee decisions (whether to continue the contract for employment, or collectively bargain based on sustainability and security of remuneration)
• Decisions by external users

  • Investment decisions (appropriate use of equity, risks and returns)
  • Lending decisions (creditworthiness, liquidity, solvency, profitability)
  • Compliance and regulatory decisions (accuracy of reports and declarations, payment of taxes)
  • Customer and consumer decisions (stability and pace of production, market, trade environment, financial status of the nation)
• Accurate financial information does not guarantee sound decisions
• Management is an internal decision maker of accounting information, not an external decision maker
• Owners are interested in the return of their capital when they look into the accounting information of a business
• When a customer wants to decide whether to continue a business with their supplier or not, they should look into the supplier's profitability
• Suppliers need to check their customer's repayment ability in order to decide the credit limit and payment terms to be given to their customers
• Decisions made based on accounting information are not the same for all users, they vary based on the user's interests and needs
• How parents can use accounting information

  To make decisions
• How students can use accounting information

  To make decisions
• ABC Company is a manufacturer of computers in the Philippines, most of its raw materials are procured from suppliers except for the keyboard which they manufacture within their capacity
• ABC Company produces 10,000 units of keyboards per year, the average cost to build the keyboard is ₱250.00 for raw materials per unit, ₱210.00 for direct labor per unit, and ₱180.00 for factory overhead per unit
• A supplier offered to supply keyboards of the same quality as ABC Company for ₱625.00 per unit, the supplier's record shows their average annual keyboard production is 750,000 units, supplied to 50 regular customers with an average annual demand of 12,000 units per customer
• Whether it would be more cost-effective for ABC Company to produce their own keyboard or buy from a supplier

  Depends on the comparison of the costs
• Whether the supplier can meet ABC Company's demand of 11,000 units of keyboard per year


  Depends on the supplier's production capacity and customer base