Main Users of Accounts
Main Users of Accounts
Purpose of Accounts
- The central objective of accounts is to provide a clear snapshot of a company’s financial position and performance over a given period of time.
- It allows various stakeholders to make informed decisions related to the business. These stakeholders are the main users of accounts.
Main Users of Accounts
Shareholders
- Shareholders are the owners of a company, and they have a direct financial interest in its performance.
- They use accounts to evaluate the return on investment, assess the firm’s success, and forecast future dividends.
- Accounts enable shareholders to judge the competency of the managers and decide on their continuity or replacement.
Management
- Management uses accounts to plan, coordinate, control, and make decisions about the business.
- It helps them to identify areas of inefficiencies, monitor performance, and set realistic goals.
- Management involves in budgeting process, assessment of profitability and liquidity. For all these, they rely heavily on accounts.
Employees
- Employees have a vested interest in the future of the company, as it directly influences job security, salaries, and benefits. Therefore, they also make use of accounts.
- They are interested in the profitability of the company, as it may reflect on their remuneration and bonus.
- Accounts also help them understand the firm’s financial stability and its future prospects.
Customers and Suppliers
- Customers and suppliers use accounts to assess the ability of the company to stay in business, as it impacts the continuity of supply or service.
- Suppliers can gauge the firm’s creditworthiness and its ability to pay invoices on time.
- On the other hand, customers may be interested in the firm’s ability to honour warranties and provide post-sales services.
Lenders and Banks
- Lenders and banks assess a company’s creditworthiness and its ability to repay loans, so they are also key users of accounts.
- They depend on the accounts to evaluate the company’s debt-equity ratio, profitability, and liquidity.
- It helps them to determine the level of risk associated with lending to the business.
Tax Authorities
- Tax authorities depend on accounts to calculate the company’s tax liability.
- They verify whether the company is adhering to tax laws and regulations.
- Accounts provide tax authorities with accurate and reliable financial data for audit and regulatory purposes.
Public
- Public also has an interest in the financial affairs of a company, particularly if it has a most significant impact on the local economy or environment.
- Accounts information can help the public to assess a firm’s contribution to the economy in the form of taxes, employment, and community investments.
Importance of Accurate Accounts
- Regardless of who the user is, it is essential that the accounts are accurate, reliable, and easy to understand.
- Manipulated or inaccurate accounts can lead to wrong decisions, which can lead to severe consequences.
- Therefore, businesses are legally obliged to maintain their accounts as per the standard accounting principles and practices.