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Here are the three types of accounting information that can help you make better financial decisions. All of this information is available to you when you have an accounting system in place.
The 3 types of Accounting Information
- Financial Accounting
▪ Often referred to as “general purpose” accounting information.
▪ Provides details on a company’s financial resources, debts, and activities.
▪ Helps investors and creditors decide where to invest their money.
▪ Primarily used for external purposes, such as applying for bank loans or filing tax returns. - Management Accounting
▪ Often referred to as “general purpose” accounting information.
▪ Used to set company goals, evaluate the performance of employees and departments, and support other management decisions.
▪ Often considers “non-financial” factors like political and environmental issues, product quality, and customer satisfaction.
▪ Primarily used for internal purposes. - Tax Accounting
▪ Adjusts or reorganizes accounting information to meet income tax reporting requirements.
▪ Also known as tax planning, which involves anticipating the tax impact of business transactions and structuring them to minimize tax liability.
How is Accounting Information Used as a Tool in Business Functions?
- Marketing Function
● Marketing relies on accounting information to set prices, assess different distribution channels, and measure marketing success. - Human Resource Function
● HR managers use accounting information to calculate employees’ monthly salaries, retirement benefits, and vacation pay. - Operations Function
● Operations uses accounting information to set goals for activities like inventory management and to assess their success or failure. - Finance Function
● Finance uses accounting information to assess investment opportunities, compare the costs of different financing options, and manage cash flow timing and amounts.
Who Are the Users and for What Purpose Do They Use Accounting Information?
In general, there are two types of users of accounting information: internal users, who make decisions for the business, and external users, who make decisions about the business. Below is a breakdown of these categories.
Let’s take a look at the table
Note
For a deeper understanding of how financial reports are utilized, you can also watch this additional video tutorial titled "Users of Financial Statements." This video explores the different types of users, such as investors, creditors, and managers, and explains how they rely on financial statements.
