Accounting Information Used by Stakeholders

by Dennis Hartman

In any business, stakeholders include people with personal or financial interests in the company. Stakeholders can be stockholders, sole owners, partners or venture capitalists who loan money to emerging businesses and profit from their growth. In each case, stakeholders use accounting information to track the activities and performance of the businesses they are tied to.


One of the key types of accounting information stakeholders use is income. Income shows how much a business is making, which is key to being able to make a profit. Businesses report income using income statements, which are among the major financial statements they issue. Income statements show stakeholders whether a company's sales are up or down and how new products are doing. Within the context of market data from industry groups, income statements reveal a company's market share, or percentage of sales in a given market. This shows stakeholders how well their companies are performing relative to main competitors.


Stakeholders also have interest in a company's expenses. Profit, which sustains a business and makes money for its stakeholders, comes from the difference between income and expenses. A business with rising income, but expenses that are rising at an even faster rate, will eventually fail. Controlling expenses, such as labor, raw materials and distribution, is an important aspect of successful business management. Expenses appear as liabilities on a company's balance sheet, where prepaid expenses also appear as assets.


Assets refer to the things a business owns or controls that have value. Stakeholders are interest in assets because they make a company valuable in the eyes of other investors. They may also be available for sale if the business needs to raise money. Everything from property and machinery to trademarks and cash are assets. A business accounts for its assets in its balance sheet. This accounting also shows how assets change in value over time, due to investment gains or depreciation.


Liabilities cover many of the additional pieces of accounting information that matter to stakeholders. Liabilities are debts, such as bank loans, payments due, taxes due and payroll commitments. Like assets, liabilities appear on a company's balance sheet. Liabilities are not necessarily bad, but when they outweigh assets they drive down a company's value. Cash flow, which refers to the rates at which money enters and leaves a business, is another important piece of information because it shows how likely a business is to pay its liabilities.

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