accounts according to the accrual basis of accounting. (iii) Hybrid or mixed basis This basis is a combination of cash basis and accrual basis of accounting. Under mixed basis of accounting, both cash basis and accrual basis are followed. Revenues and assets are generally recorded on cash basis whereas expenses and liabilities are generally taken on accrual basis.
. Users of Accounting information Student activity Think: ‘Accounting is useful only to the owner of the business’ – Do you agree? There are several persons who need the accounting information for various purposes. They can be classified into two: (A) Internal users and (B) External users Accountancy - A) Internal Users The internal users are owners, management and employees who are within the organisation.
(i) Owners The owners of a business provide capital to be used in the business. They are interested to know whether the business has earned profit or not during a particular period and also its financial position on a particular date. They want accounting reports in order to have an appraisal of performance and also for an assessment of future prospects to ensure that they will get their expected returns from the business and get back their capital safely. (ii) Management Accounting data are the basis for most of the decisions made by the management.
The trends in sales and purchases, relationship of expenses to the sales, efficiency of employees, comparative profitability of different departments, capital structure and solvency position are some of the vital data required by management for planning and controlling the business operations. Financial statements and other reports prepared under financial accounting provide this information to the management. Capital structure refers to the mix of a firm’s permanent long-term financing represented by debt, preference share capital and equity shareholders’ funds. (iii) Employees The employees are interested in the profit earning capacity of the business which will affect their remuneration, working conditions and retirement benefits and stability and growth of the enterprise.
B) External users External users are the persons who are outside the organisation but make use of