Much of accounting is directed at servicing the information needs of those users that are external to
an organization. Identify at least three external users of accounting information and indicate two questions
they might seek to answer through their use of accounting information.
To identify external users of accounting information, we need to understand that these users are individuals or organizations outside of the company who rely on accounting information for decision-making purposes. Here are three examples of external users and the types of questions they might seek to answer:
1. Investors:
- Is the company financially stable and capable of generating profits?
- What is the company's past performance, and what can I expect for future returns on my investment?
2. Creditors (such as banks or lending institutions):
- What is the financial position of the company to assess its creditworthiness?
- Can the company repay its debts, and what is the level of risk associated with lending money to the company?
3. Government agencies or tax authorities:
- Is the company complying with tax regulations?
- How much tax does the company owe based on its financial performance?
To find specific questions that external users might seek to answer using accounting information, it is helpful to consider their specific interests and goals. However, these examples serve to highlight the types of questions external users generally seek to address.