This document discusses two important topics in accounting: users of accounting information and limitations of accounting information. It describes the internal and external users of accounting information, including owners, potential investors, creditors, lenders, employees, and the government. It then lists several key limitations of accounting information, such as it being influenced by personal judgments, based on accounting concepts and conventions, providing incomplete information, omitting qualitative information, being based on historical costs, affected by window dressing, and being unsuitable for forecasting.

2. In This PPt , we are going to cover 2
Important topics Studied in Accounting
The First Is Users Of Accounting
Information
The Second will be Limitations Of
Accounting Information

4. Accounting Information is used by various groups of
people who have contact with the business enterprise.
They use accounting information in order to satisfy
some of their varied needs for information.
These Users are Classified As :
• Internal Users
• External Users

5. Internal Users
Internal Users are the persons who are directly
involved in managing and operating the business
enterprise such as directors or the partners,
managers and offices.
These persons need accounting information for the
efficient and smooth running of the business
enterprise.

6. External Users
External Users are the individuals or organizations
who have present or future interest in the business
enterprise but are not part of the management.
The external users are owners, potential investors,
creditors, lenders, employees, Government etc.

7. Owners
Owners want to know about the
profitability and financial soundness
of the business.
They also want to know if the profits
are increasing or decreasing.
What are the reasons for the
increase and decrease in Profits?

8. PotentialInvestors
Those who want to invest money in a
business enterprise need information
to judge how safe and rewarding the
proposed investment will be.
Accounting provides them such
information.
On the basis of this information, they
decide whether to become a partner
in the firm.

9. Creditors
Creditors are the persons who supply
goods or services on credit.
Before granting credit, creditors want
to be satisfied about the
creditworthiness of the business
enterprise.
Accounting information help them in
asserting the financial capability of
the business.

10. Lenders
Banks and financial institutions lend
money to the business.
Before providing a loan to a
business, they want to judge the
repaying capacity of the business.
Such information is provided by
Accounting.

11. Employees
Employees need information about the
profits of a business to access the
ability of a business to pay higher
wages and bonuses.
This Information is Provided by
Accounting.

12. Goverment
The Government is interested in the
financial statements of a business on
accounts of assessment of income tax,
sales tax, excise duty etc.
As such, the Government wants that
the accounts are maintained in a true
and fair manner.

13. As an information system, the accounting process
provides information to all the users whether inside or
outside the business enterprise.
Such information helps the users of the information in
making various Decisions.

15. Accounting information provides
valuable information to various parties.
However, accounting has certain
limitations which must be kept in mind
while using such information.
These limitations are as follows:

16. Influenced By Personal Judgments
Different persons are bound to have different opinion
in respect of such things and hence it will result in
ascertainment of different figure of profit or loss of a
business by different persons.
Hence the figure of profits cannot be taken as an
exact figure.

17. Based On Accounting Concepts and
Conventions
Accounts are prepared on the basis of a number of
accounting concepts and conventions.
Hence, the profitability and the financial position
disclosed by it may not be realistic.
The values realized on their sale may be more or
less than the valves stated in the balance sheet.

18. Incomplete Information
Accounting statement s provide only the incomplete
information because the actual profit or loss of a
business can be known only when the business is
closed down.

19. Omission Of Qualitative
Information
Qualitative aspects of business units are completely
omitted from the books as these cannot be
expressed in monetary terms.
Hence , Many of the things which have a vital
bearing on the profitability of the firm are all ignored
and omitted from being recorded because all of
these are qualitative in nature.

20. Based On Historical Costs
Accounts are prepared on the basis of historical
costs and as such the figures given in financial
statements do not show the effect of changes in
price level.
The outcome of this practice is that balance sheet
values of assets are not helpful in estimating the true
financial position of the business.

21. Affected By Window Dressing
Window Dressing refers to the practice of
manipulating accounts, so that the financial
statements may disclose a more favorable position
than the actual position.
Hence, correct decisions cannot be taken on the
basis of such financial statements.

22. Unsuitable For Forecasting
Financial Accounts are only a record of past events.
Continuous Changes takes place in the demand of
the product, policies adopted by the firm, the position
of competition etc.
As such, the financial analysis based on past events
may not be of much use for Forecasting.