Explain the importance of financial accounting primarily information | external user for accounting information

Explain the importance of financial accounting primarily information for external parties-primarily investors and creditors-in terms of the objectives and the characteristics information?

EXTERNAL USERS OF ACCOUNTING INFORMATION

What do we mean by external users and who are they? External users of accounting information are individuals and other enterprises that have a current or potential financial interest in

the reporting enterprise, but that are not involved in the day-to-day operations of that enter-

prize. 

External users of financial information may include the following:

Suppliers

Owners

Customers

Creditors

Trade associations

Potential investors

General public,

Labor unions

Governmental agencies each of these groups of external decision makers requires unique information to be able to make decisions about the reporting enterprise. 

For example, customers who purchase from the enterprise need information to allow them to assess the quality of the products they buy and the faithfulness of the enterprise in fulfilling warranty obligations. Governmental agencies such as the Federal Trade Commission may have an interest in whether the enterprise meets certain governmental regulations that apply. The general public may be interested in the extent to which the reporting enterprise 15 socially responsible (roar example, does not polite

the environment).

Providing information that meets the needs of such a large set of diverse users is difficult if not impossible, in a single set of financial information. Inheritor, external financial reporting is primarily used by two groups-1nvestors and creditors. As you will soon see, investors are individuals and other enterprises that own the reporting enterprise. Creditors, on the

other hand, are individuals and other enterprises to whom the reporting entity owes money

goods, or services. 

For example, a commercial bank may have loaned money to the reporting enterprise, or a supplier may have permitted the reporting enterprise to purchase goods and to pay for those goods later. Our assumption is that by meeting the financial information needs of investors and creditors, we provide information that is also useful to many other users of financial information.

For these reasons, we sometimes refer to investors and creditors as the primary external financial information users. When you see references like these, keep in mind that we are talking about both current investors and creditors and those individuals and other enterprises may become investors and creditors in the future