Accounting is known as a process of identifying, collecting, summarizing and recording the monetary transactions of business systematically and scientifically and providing actual information to internal users (management, employees, shareholders etc.) and external users (investors, customers government etc).
So, accounting information is important for different groups of users which can be described as follows:
1. Importance Of Accounting Information To Shareholders
Shareholders are the actual owners of a business company. Accounting information provides the correct financial position of the company which helps to understand the financial health of a business and make decision regarding selling, holding or buying stocks.
2. Importance Of Accounting Information To Creditors/Lenders
Lenders or creditors provide loan to the company with the am of earning interest. Accounting information shows the liquidity and solvency position of the firm which helps the creditors to make decision regarding loans (either to withdraw, increase or decrease the loan amount).
3. Importance Of Accounting Information To Government
Government formulates several plans and policies to make law and order and to promote social welfare. Accounting information provides key financial data and valuable information to the government to make tax policies to raise revenue.
4. Importance Of Accounting Information To Management
Management requires financial information to know the current position and to make future plans. Accounting information helps the managers in decision making and formulating future policies.
5. Importance Of Accounting Information To Employees
Accounting information is important for the employees to know productivity and profitability of their company. It helps them to determine possibility of reward, job security and other financial and non financial benefits.
6. Importance Of Accounting Information To Customers
Customers can know exact position of a firm with the help of financial information. Companies with good financial position can retain their existing customers and attract new customers.
