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May 01, 2023


Financial Statements Uses By Internal And External Users

The financial statements those are prepare by the company are comprehensive income statement, balance sheet statement, cash flow statement and statement of change in equity. The internal users of financial statements are managers and the other employees of the business. The external users of financial statements are investors or shareholders, lenders, suppliers, customers and government and the others (Sherman, 2019).  

The internal users of the company such as employees use the income statement of the business to evaluate the past results to estimate the future growth. The employees estimates the future growth for their own purpose of growth in the monetary aspects and job positions. The manager or owners of the company uses cash flow statement, income statement and balance sheet statement for determining the issues or errors of working or long term operations. The manager or owners prepares the strategies for resolving the problems or issues for effective long term operations (Accounting Tools, 2021a).

The external use such as lender uses the financial statement to evaluate the ability of the business to pay back all the liability amount and relative interest charges. Investors analyse the income and balance sheet statement of the business to estimate the return value from the investment amount (Accounting Tools, 2021b). The suppliers of the company uses the financial statement to decide whether it is safe to extended time of credit or not. Government is also an external user that uses the financial statements of the business to evaluate whether the company paid the accurate taxes amount. It is required for the business to pay the tax amount to government for nation’s growth (Accounting Tools, 2021a).

The discussion states the importance of preparing the financial statements for internal and external users. The internal and external users uses the financial information as per their own purposes for taking the right decision (Thakur, & Vaidya, 2021).

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