Interactive Worksheet: the Users Of Accounting Information
|by Ken Delaney-Moore, Sheffield Hallam University|
This worksheet deals with:
- Who uses accounting information, and why.
- The difference between financial accounting and management accounting.
After having completed the worksheet you should be able to explain both of these points. When you are done, please fill-in the on-line evaluation form in order for us to monitor the quality of the materials we provide for you. Tell us what we're doing right and wrong. It takes very little time, and your opinions are valued - thank you.
Why do we bother keeping accounting records?
There is more than one answer to this. Firstly, the managers of the business will want to know how things are going. They need financial information in order to plan for the future; they then need more up-to-date information in order to check whether actual performance is on target. This process is known as controlling the costs and finances. In accounting it is known as management accounting. So, management accounting is done by the managers, for the managers, for the purposes of planning and control.
Secondly, there are several groups of people who may have an interest in the finances of the business. The law says that they have a legal right to certain information. The whole process of providing this information (and of maintaining a book-keeping system capable providing it) is known as financial accounting.
The interested parties are often referred to as 'stakeholders'. Look at the table below. Which groups of people (or organisations) would be most interested in the information in the right-hand column? (If you get stuck, you can go to a work-sheet on stakeholders to find some answers - write these answers down on a piece of scrap paper, then click the 'back' button on your browser to get back here). If you wish to check, some answers are suggested at the end of this exercise.
|Which stakeholder group...||would be most interested in...|
|A: the VAT and other tax liabilities of the firm|
|B: the potential for pay awards and bonus deals|
|C: the ethical or environmental activities of the firm|
|D: whether the firm is has a long-term future|
|E: profitability and share performance|
|F: the ability of the firm to carry on providing a service or producing a product|
So, 'financial accounting' is all about keeping records in order to satisfy legal requirements of reporting to stakeholders. It should be noted that Limited Companies have far greater legal requirements than do 'smaller' businesses such as sole-traders and partnerships.
Some answers to activity 1 (these should not be regarded as the 'only' answers):
A. Government; B. Trade Unions and staff; C. Pressure groups (also customers, shareholders); D. Trade Unions and staff, suppliers, customers E. Shareholders F. Customers