Tuesday, June 28, 2022

Internal vs. External Users of Accounting Information (Financial Accounting Tutorial #3)

Good morning no pirate viewers we're going to be talking about internal versus external users in this one mainly because I brought it up in my what is Financial Accounting tutorial because I was mainly talking about how financial accounting is mainly directed towards external users so we're going to be differentiating between the two terms .

Internal user and an external user and you might have to give me a second every once in a while to clear my throat as I have a bit of a cold because of the extreme cold temperatures here in Toronto Ontario Canada I guess that's all I have to deal with with living within Canada but with the cold winters of course but I do have a Tull Starbucks .

Here it's loading me up with caffeine and I've got energy so let's go ahead and continue this let's look at internal users first so internal users that they are users that use information and they lay within the company so they are basically employees is one type let me write that down first employees so maybe maybe like the accounting department .

Looking at the accounting figures and information whether there are going to be any cash flow issues in the next quarter or so on whether they have to bring up to management that there are going to be any cash crunches maybe you need to look at the collections whether they're collecting sales made on credit and actually converting that to cash and .

So on so they're one type of user that looks at financial information that lies within they're a user that lies within a company another one I was talking but managers which are higher up there like managers like a chief financial officer and they might have to maybe they'll be looking at the financial statements and want to evaluate the capital of the .

Capital capture the capital structure of their their corporation or company and what the capital structure is it basically you look at how the the company is split up and how its kind of district of yeah basically split up into portions of debt or equity like shares or preferred shares so basically how the company's all split up whether a lot of .

The company is financed on debt or whether they raise a lot of their money through equity by giving a share of their company away to to investors or other types of owners so that's another type of internal user like managers of course they don't just look at capital structure they look at so many other things but that's just one example of .

What managers might look at within financial statements or the information another one could be maybe maybe a plant supervisors that this might get more into management accounting plant supervisors the role in how they use financial information but let's just say that they have a question about whether they can afford to raise wages because .

Maybe maybe the Union is striking and they need to decide whether they can raise wages without getting into trouble financially so we'll bring it up of course to their managers and so on but they might look at the information as to how much wages are breaking into the margins and so on so those are three types of users that .

Use financial information who are internal users let's talk about external let's up this layer so I've got externals kind of overlapping on top of internal external users are users of information that are outside outside of the company so I think I think you can basically deduct what kind of user that is it's .

Like a it's maybe like a creditor like a bank they need to look at the the information about whether they can loan you money maybe you fall into some operational issue where you need cash to basically continue operating or maybe they need to look at what kind of percent interest rate to charge you how much of a risk you are – or how much of .

A risk that is for making a loan to this company that's one type another site maybe an analyst because they're looking at the numbers and they're making an independent independent decision as to whether maybe the company is a buy or a sell or hold or so on you'll commonly see those terms brought up in press releases or news on maybe Google Finance .

Or so on like oh I don't know JP Morgan is a by JP Morgan is a sell and they just constantly fluctuate depending on the financial information so they look at the financial information of course and break down all those numbers they analyze it that's why they're called an analyst and I guess one that's more relevant an investor kind of like you .

And me I guess if you invest in stocks or bonds or place your money and anything besides cash basically are they a good investment so good investment maybe you want to look at there dividends see whether maybe you're more in it for just holding onto the stock and living off that that income as it gets generated and distributed to you in .

Cash or maybe you want to look at the company and whether they look like they're there are growth companies so maybe they want to keep all their dividends within the company and grow the company and so on this is all you can all find you can find this all within financial statements and financial information so of course .

Investors will look at the financial statements just like an analyst would or right or any other user would so basically these are all users but the difference is that internal our users within a company and external our users outside of a company so basically just remember that financial accounting is primarily directed towards external .

Users while you'll find out later that managerial accounting is directed more towards internal users so that's that's my quick tutorial make sure to subscribe like always and thanks for listening if you have any questions we're going to accounting or any of them right here within our videos you can tweet us at Note pirate you can like us on Facebook .

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