Chapter 1 : External vs. Internal Users

What are lenders?

(Creditors) loan$/other resources to an organization. Banks, savings & loans, and mortgage companies are lenders. They use info. to access if an organization will repay loans.

What are shareholders?

(investors) owners of a corporation. They use accounting reports to decide to buy, hold, or sell stock

External User def:

- Have to do w/ Financial Accounting - DO NOT directly run organization therefore have limited access to accounting info. - they get their accounting info. from general-purpose financial statements

Internal user def:

- Have to do w/ managerial accounting - IU (internal users) of accounting info. directly manage the organization. - internal reports are designed for the unique needs of

List external users (10)

1) Lenders 2)Shareholders 3)Board of directors 4)External (independent) auditors 5)Regulators 6)Voters/govt. officials 7)Contributors 8)Suppliers 9)Customers 10)Nonmanagerial/non executive employees/labor unions

List Internal users (7)

1) purchasing managers 2) Human resource mana. 3)Production mana. 4)Distribution mana. 5)Marketing mana. 6)Service mana. 7)Research and development mana.

Examines whether financial statements are prepared using GAAP; it does not ensure absolute accuracy of the statements

Audit

SEC regulator =

External

What type of user are Lenders?

External

What type of user are shareholders?

External

What type of user is the boards of directors?

External

Which companies are under IRS investigation for tax fraud?

External

Which companies file financial statements with the SEC?

External

What type of user are Regulators? & what do they do?

External They have legal authority over certain organization activities. Ex: IRS requires accounting reports for computing taxes.

What type of user is nonmanagerial/nonexecutive employees/labor unions? & what do they do?

External They use external info. to bargain for better wages.

What type of user is the External (independent) auditor? & what do they do?

External. They examine financial statements to verify that they are prepared according to generally accepted accounting principles.

What type of users are Customers? & what do they do?

External. They use financial reports to access the stability of potential suppliers.

What type of user are Suppliers? & what do they do?

External. They use info. to analyze a customer before extending credit

What type of user are voters/govt. officials? & what do they do?

External. They use info. to evaluate govt. performance.

What type of user are Contributors? & what do they do?

External. To nonprofits use info. to evaluate the use and impact of donations.

Collection of accounting rules and concepts set by the FASB

GAAP

International group that issues IFRS

IASB

Accounting function: Recording

Input, measure, and log Examples are dated logs of transactions measured in dollars

Ingredient supplier

Internal

What are the costs of our service to customers?

Internal (Marketing Managers)

Procedures set up to protect company property and equipment, ensure reliable accounting, promote efficiency, and encourage adherence to policies.

Internal Control

What type of user are Human Resource Managers? & what do they do?

Internal. They need info. about employees' payroll, benefits, & performance.

What type of user are Distribution Managers? & what do they do?

Internal. They need reports for timely and accurate delivery of products & services

What type of user are Purchasing Managers? & what do they do?

Internal. They need to know what, when, & how much to purchase.

What type of user are Research & Development managers? & what do they do?

Internal. They use info. on projected costs and revenues of innovations.

What type of user are Productions Managers? & what do they do?

Internal. They use info. to monitor costs and ensure quality.

What type of user are Service Managers? & what do they do?

Internal. They use reports to provide better service to customers.

What type of user are Marketing Managers? & what do they do?

Internal. They use reports to target consumers, set prices, & monitor consumer needs.

Accounting function: Communicating

Prepare, analyze, and interpret Examples are reports that we analyze and interpret.

Accounting function: Identifying

Select transactions and events Examples are Apple's sale of iPhones and Ticketmaster's receipt of ticket money

Estate Planning Financial or Managerial or Tax acc.?

Tax Accounting

Investigating tax fraud Financial or managerial or tax acc.?

Tax accounting

Creditor

external

shareholder =

external

How did the nonprofit organization use our donations? external or internal?

external (board of directors)

Should we buy, hold, or sell a company's stock? external or internal?

external (shareholders)

External auditing = financial or managerial acc. ?

financial b/c external user

Human resources executive =

internal

Should we spend additional money for redesign of our product?

internal

production supervisor =

internal

How well has our new salesperson performed?

internal (human resource managers)

Accounting definition

is an information and measurement system that identifies, records, and communicates an organizations business activities.

Internal auditing= Financial or managerial?

managerial (directly involved)

Budgeting Financial or managerial?

managerial accounting

cost accounting = Financial or Managerial?

managerial accounting

What does the board of directors do?

oversee organizations and are not involved in day to day operations. Directors use accounting info. to evaluate the performance of executive management.

Tax consulting Financial or managerial or tax accounting?

tax accounting