A business should produce accounting information, in the way of the year end financial statements and other financial data, because there are various groups of individuals who require this information so as to make decisions. The needs and objectives of these groups are often different, so what might be useful information for one group may be of no use to another. In this article I will briefly look at some of the types of individuals who are interested in the various forms accounting information produced by a business.
This could include a bank that wants to see the financial statements in order to grant an overdraft or provide the business with a loan. The banks chief concern, before granting a loan, will be to seek assurances that the business will be able to meet the loan repayment obligations and consequently pay any capital amounts outstanding at the end of the loan term. Banks are just one type of finance provider and a business may need to provide similar accounting information to other specialist providers.
Suppliers may require accounting information to gauge a business’s ability to pay them for their supplies when the due dates fall. They will want to satisfy themselves that the business they supply to will not end up defaulting on any amounts owed.
Employees have an interest in the financial statements and other accounting information for the business, because their jobs and personal financial welfare depend on the business and how well it does. Indeed, the financial well- being of a business can have dramatic effects on the salary levels of its employees.
The managers of a business are responsible for the overseeing the daily activities of a business and ensuring that it runs smoothly. They are ultimately answer to the shareholders or owners of a business. They will require management accounting information to see how the business is performing on a monthly or quarterly basis, in addition to the annual financial statements.
HM Revenue and Customs will want to see the financial statements in order to ascertain the tax position for a business. They may also require financial information on a regular basis to support the VAT and Payroll position of a business.
Lastly, shareholders will want to see the financial statements and other accompanying financial information to assess how their investment in a company is doing, to check how management are performing and also to ascertain how much is available in the way of retained profits so they can take dividends now or in the future.