Accounting information exists to help people make decisions. Each user looks at the same records but asks a different question, and your answer should match the question.
This lesson is part of SPM Accounting foundations. The statements users read are covered in financial statements of a sole trader.
Who uses the information?
Internal users run the business. The owner and managers use the records to plan, control costs and decide prices.
External users have an interest in the business without running it. They include lenders, suppliers, employees, customers and government bodies. They rely mainly on the published financial statements.
Worked example: one business, five questions
Dapur Sinar is a small catering business. Its latest statements show profit of RM42 000, cash of RM6 500, and a bank loan of RM30 000.
| User | Question they ask | Information they use |
|---|---|---|
| Owner | Is the business earning enough to justify my effort? | Profit for the year |
| Bank | Can the RM30 000 loan be repaid on time? | Profit, cash and total liabilities |
| Supplier | Will the business pay my invoices when they fall due? | Cash, payables and payment record |
| Employee | Can the business keep paying my wages and offer a raise? | Profit and cash |
| Tax authority | Has the correct income been reported for tax? | Income, expenses and profit |
The same RM42 000 means different things. The bank compares it with the loan. The owner compares it with what the same hours could earn elsewhere.
A template for your answer
Use three short parts for each user. Name the user, state the decision, and name the item from the accounts.
For example: “A bank needs information about profit and total liabilities, because it must decide whether the business can repay a loan on time.”
The mistake that loses marks
The common slip is to write that every user “wants to know the financial position of the business”. The sentence is true but earns little, because it does not separate one user from another.
The repair is to tie the user to a specific item. A supplier cares about payables and cash, and the tax authority cares about reported income.
Check yourself
A company wants to apply for a RM200 000 bank loan. State two items in the accounts the bank will examine, and explain why.
Answer
Item 1: profit, because the bank wants to see that the business earns enough to pay the loan interest and repayments.
Item 2: existing liabilities, because a business that already owes a large amount may struggle to take on more.
Both items link the bank’s decision, whether to lend, to specific figures in the accounts.
What to study next
Continue with separating personal and business transactions, which explains why the records belong to the business and not to the owner. Look up any unfamiliar term in the accounting glossary.
For a teacher to read your written answers and sharpen them, see online one-to-one Accounting tuition.