USERS OF THE

FINANCIAL
STATEMENTS
PREPARED: MR. JUAN LUCAS C. GARCIA
LEARNING OBJECTIVES

▪ To define external users of accounting data and

give examples.
▪ To define internal users of accounting data and
give examples.
▪ To identify the type of decisions made by each
group of users.
▪ To describe the type of information needed by
each group of users
▪ To cite users of financial information and identify
whether they are external or internal users.
EXTERNAL USERS

▪ Customers
▪ Creditors
▪ Potential Investors
▪ Suppliers
▪ Government
▪ Academe
▪ Public
EXTERNAL USERS

Decisions
made using
accounting
Example of
Type of User Definition information /
Users
Benefits from
accounting
information
Whether or not
Patrons, clients, to build
Main source of
people relationship
businesses;
acquiring goods with the
Customers acquire goods
or services of a business, to
and services for
company for a have any
a fee
fee dealings with
the business
EXTERNAL USERS: EXAMPLE (CUSTOMERS)

Patricia plans to organize a furniture shop. She wants her

business to take off by building the furniture from scratch.
However, the materials needed to build the furniture will be
purchased from an outside supplier. Patricia has two possible
suppliers: Dayana Company and Dray Company. For the last 5
years, Dayana Co. and Dray Co. displayed positive income in
their financial statements with Dray Co. having a slightly higher
income on the average than Dayan Co.’s. Both companies are
regarded as reliable suppliers. But during the last year, Dray Co.
experienced problems in its operations due to a labor strike
preventing it from fulfilling all orders. What company should
Patricia choose as her supplier?
Based on the facts given, Patricia should choose Dayana Co.
as her supplier. Even though Dray Co.’s income is slightly
higher on the average than Dayana Co.’s, the reliability of
Dayana Co. is the more important factor to consider. Since
the operation of Dayana Co. is stable, it will likely be the more
stable supplier.
EXTERNAL USERS

Decisions made
using accounting
information /
Type of User Definition Example of Users
Benefits from
accounting
information

Providers of
additional funds Banks, lending
Whether or not to
when the initial institutions,
lend resources to
investment of wealthy
the business, try to
owners is individuals;
Creditors see if the business
exhausted; lend sometimes the
is not very risky
resources to government can
before lending
businesses usually also lend resources
funds
in the form of to a company
money
EXTERNAL USERS: EXAMPLE (CREDITORS)

Amadeo. Co., a textile manufacture, submitted a proposal to

Philippine Rural Bank (PRB) which states that the company
plans to borrow ₱5M payable two (2) years from now. Amadeo
Co. also promises to pay interest of ₱150 000 every six months.
PRB examined Amadeo Co.’s financial statements. Based on the
bank’s analysis, they formed the following conclusions:
1. The profit of Amadeo Co. grew by an average of 10% each
year for the past 3 years.
2. Amadeo Co. only has a small amount of borrowings.
3. Amadeo Co. never defaulted on its borrowings in the past.
Assuming no other use for its excess funds, should PRB lend
money to Amadeo Co.? The answer is yes. The conclusions
showed that lending to Amadeo Co. is not a risky endeavor.
EXTERNAL USERS

Decisions made
using accounting
information /
Type of User Definition Example of Users
Benefits from
accounting
information

Providers of
additional funds Whether or not to
when the initial invest in the
Wealthy
investment of business, primary
individuals, other
Potential Investors owners is concern is the
businesses
exhausted; invest ability of the
planning to invest
resources in the business to provide
business hoping to acceptable returns
earn decent returns
EXTERNAL USERS: EXAMPLE
(POTENTIAL INVESTORS)

Aryana is a successful career woman. During her 15-year tenure

as an engineer, she amassed a total of ₱10M in savings. Instead
of placing her money in the bank, which earns only 2% in
interest every year, she plans to invest in either Shell or Petron.
Shell and Petron are two of the largest oil companies in the
country. After analyzing the financial statements of both
companies, Aryana noted that Petron and Shell earned high
levels of profit for the past 2 years with Petron garnering
Php40M more in profits. In addition, Petron is planning to
expand the business which is expected to bring in more profits
for the company.
Based on the facts given, it is more probable that an
investment in Petron will be the more profitable investment
in the long run. As illustrated in this example, both the
company and the investor will benefit from the
communication of accounting information. Investors can
make better informed decisions while companies can attract
potential investors to provide additional funds.
EXTERNAL USERS

Decisions made
using accounting
information /
Type of User Definition Example of Users
Benefits from
accounting
information

Whether or not the

company has the
Providers of
Producers of capacity to pay
inventories and
supplies and short term debts in
supplies that the
inventories; Those case of installment
Suppliers company needs in
who assemble payments; Sees to
order to produce
furniture, and it that the
goods or render
equipment company’s liquidity
service
is enough to pay
short term debts
EXTERNAL USERS

Decisions made
using accounting
information /
Type of User Definition Example of Users
Benefits from
accounting
information

Oversees business
operations with the
An external user
end goal of
whose primary role Different
improving the
is to regulate government
economy; checks
businesses; studies agencies, taxing
Government the accuracy of the
financial authorities,
financial
statements to government
statements to
determine amount officials
compute for the
of taxes payable
correct amount of
taxes payable
EXTERNAL USERS: EXAMPLE (GOVERNMENT)

The Bureau of Internal Revenue (BIR) is responsible for the

assessment and collection of taxes from its constituents. As
you probably heard in the news, BIR is strengthening its
collection policies to provide more funds for the
government to use. In the BIR, tax assessors and tax
collectors study the financial statements of the companies
and compare them with filed tax returns. If the tax returns
do not match to the results of the financial statements, the
BIR computes for the appropriate taxes to be collected.
EXTERNAL USERS

Decisions made
using accounting
information /
Type of User Definition Example of Users
Benefits from
accounting
information

Uses accounting
information in the
teaching of
Uses accounting accountancy;
Professors,
information researches
Academe lecturers, students,
primarily for loopholes and
and researchers
academic purposes possible
improvements in
the field of
accountancy
EXTERNAL USERS: EXAMPLE (ACADEME)

Zed is currently enrolled in a BSA program in the Philippines.

For his project, he was tasked to report on the condition of
the consumer goods industry in the country. He must also
explain how the businesses in the industry operate.
To accomplish his project, Zed can take a look at the
financial statements of some businesses like Procter &
Gamble and Unilever. Being the top two businesses in the
industry, the performance of P&G and Unilever is a good
indicator of the condition of the industry. The nature of
the operations of these businesses can also be seen in
their financial statements.
EXTERNAL USERS

Decisions made
using accounting
information /
Type of User Definition Example of Users
Benefits from
accounting
information

Citizens and
residents of the
Concerned with the
country even
overall
though they do not
performance of the
plan to transact Common people
economy; use
General Public with the business; not connected with
financial
use financial the company
information to
statements to
estimate economic
gauge the
performance
condition of the
economy
INTERNAL USERS

▪ Management
▪ Employees
▪ Owners or Stockholders
INTERNAL USERS

Decisions made
using accounting
information /
Type of User Definition Example of Users
Benefits from
accounting
information

Uses financial
information in
Employees that can
Board of directors, making business
make decisions for
top management, decisions; allows
the company;
Management middle-level management to
considered the
managers, identify problems
brain of the
supervisors immediately and to
company
respond
accordingly
INTERNAL USERS: EXAMPLE (MANAGEMENT)

Fix It Beauty Salon is one of the largest and most successful salons in
the country. For the past 5 years, Fix It earned significant amounts of
profits. Financial statements from the previous year indicated a net
income of ₱10M. During the first quarter of the ensuing year, revenues
of the company are well below budgeted amounts. The first quarter’s
poor performance alarmed the owners, so they ask Mr. Louie Tan, head
of company operations, to identify and solve the problem.

By examining the financial statements, Mr. Tan noticed that 10 out

of 25 branches of Fix It had revenues below the budget. He also
noticed that the marketing and advertising expenses of these
branches were also materially below the budget. He found out that
managers of these branches cut on the advertising expense in hopes
of improving the net income figure. This plan obviously backfired
since revenues lost are greater than the savings from marketing and
advertising. Mr. Tan immediately ordered the managers of these
branches to follow the proposed advertising expense in the next
quarter.
INTERNAL USERS

Decisions made
using accounting
information /
Type of User Definition Example of Users
Benefits from
accounting
information

Persons in the
company aside Check if the
from managers and Laborers, field business is
owners or workers, non- profitable enough
Employees
stockholders; do managerial to provide
not have authority employees compensation and
to implement other benefits
decisions
INTERNAL USERS

Decisions made
using accounting
information /
Type of User Definition Example of Users
Benefits from
accounting
information

Mainly concerned
with the returns
Existing investors Founders of the earned from their
of the company; company, owners, investment;
Owners or
concerned mostly stockholders, owners taking
Stockholders
with the profits of partners, active roles in the
the company proprietors operations of the
business; also
make decisions
REVIEW QUESTIONS

Classify each of the following as either external user or internal user.

▪ Academe

▪ Creditor

▪ Customer

▪ Employees

▪ General Public

▪ Government

▪ Management

▪ Owners or Stockholders

▪ Potential Investors

▪ Suppliers
REVIEW QUESTIONS

Classify each of the following as either external user or internal user.

▪ Academe - EXTERNAL

▪ Creditor

▪ Customer

▪ Employees

▪ General Public

▪ Government

▪ Management

▪ Owners or Stockholders

▪ Potential Investors

▪ Suppliers
REVIEW QUESTIONS

Classify each of the following as either external user or internal user.

▪ Academe - EXTERNAL

▪ Creditor - EXTERNAL

▪ Customer

▪ Employees

▪ General Public

▪ Government

▪ Management

▪ Owners or Stockholders

▪ Potential Investors

▪ Suppliers
REVIEW QUESTIONS

Classify each of the following as either external user or internal user.

▪ Academe - EXTERNAL

▪ Creditor - EXTERNAL

▪ Customer - EXTERNAL

▪ Employees

▪ General Public

▪ Government

▪ Management

▪ Owners or Stockholders

▪ Potential Investors

▪ Suppliers
REVIEW QUESTIONS

Classify each of the following as either external user or internal user.

▪ Academe - EXTERNAL

▪ Creditor - EXTERNAL

▪ Customer - EXTERNAL

▪ Employees - INTERNAL

▪ General Public

▪ Government

▪ Management

▪ Owners or Stockholders

▪ Potential Investors

▪ Suppliers
REVIEW QUESTIONS

Classify each of the following as either external user or internal user.

▪ Academe - EXTERNAL

▪ Creditor - EXTERNAL

▪ Customer - EXTERNAL

▪ Employees - INTERNAL

▪ General Public - EXTERNAL

▪ Government

▪ Management

▪ Owners or Stockholders

▪ Potential Investors

▪ Suppliers
REVIEW QUESTIONS

Classify each of the following as either external user or internal user.

▪ Academe - EXTERNAL

▪ Creditor - EXTERNAL

▪ Customer - EXTERNAL

▪ Employees - INTERNAL

▪ General Public - EXTERNAL

▪ Government - EXTERNAL

▪ Management

▪ Owners or Stockholders

▪ Potential Investors

▪ Suppliers
REVIEW QUESTIONS

Classify each of the following as either external user or internal user.

▪ Academe - EXTERNAL

▪ Creditor - EXTERNAL

▪ Customer - EXTERNAL

▪ Employees - INTERNAL

▪ General Public - EXTERNAL

▪ Government - EXTERNAL

▪ Management - INTERNAL

▪ Owners or Stockholders

▪ Potential Investors

▪ Suppliers
REVIEW QUESTIONS

Classify each of the following as either external user or internal user.

▪ Academe - EXTERNAL

▪ Creditor - EXTERNAL

▪ Customer - EXTERNAL

▪ Employees - INTERNAL

▪ General Public - EXTERNAL

▪ Government - EXTERNAL

▪ Management - INTERNAL

▪ Owners or Stockholders - INTERNAL

▪ Potential Investors

▪ Suppliers
REVIEW QUESTIONS

Classify each of the following as either external user or internal user.

▪ Academe - EXTERNAL

▪ Creditor - EXTERNAL

▪ Customer - EXTERNAL

▪ Employees - INTERNAL

▪ General Public - EXTERNAL

▪ Government - EXTERNAL

▪ Management - INTERNAL

▪ Owners or Stockholders - INTERNAL

▪ Potential Investors - EXTERNAL

▪ Suppliers
REVIEW QUESTIONS

Classify each of the following as either external user or internal user.

▪ Academe - EXTERNAL

▪ Creditor - EXTERNAL

▪ Customer - EXTERNAL

▪ Employees - INTERNAL

▪ General Public - EXTERNAL

▪ Government - EXTERNAL

▪ Management - INTERNAL

▪ Owners or Stockholders - INTERNAL

▪ Potential Investors - EXTERNAL

▪ Suppliers - EXTERNAL
NEXT TOPIC

▪ BRANCHES OF ACCOUNTING
– FINANCIAL ACCOUNTING
– MANAGEMENT ACCOUNTING
– GOVERNMENT ACCOUNTING
– AUDITING
– TAX ACCOUNTING
– COST ACCOUNTING
– ACCOUNTING EDUCATION
– ACCOUNTING RESEARCH