Accounts are not kept for their own sake. They are prepared because different people need to know how a business is doing. Knowing who uses accounting information, and why, helps you see what the statements are trying to show.
In IGCSE Accounting this idea comes early because it explains the purpose of the subject. Every rule, layout and figure exists so that a particular reader can make a sensible decision.
Readers fall into two groups: internal users, who are part of the business, and external users, who stand outside it but depend on its figures. Here are the main users, what each is looking for, and how their needs shape the accounts.
The owner
The owner is the most obvious user. They want to know whether the business is making a profit, whether it can pay its bills and how their investment is growing.
The accounts show whether the business is succeeding and where changes might be needed. In a small business, the owner is often the main reader.
Picture a small stationery shop (an invented example). In one year it earns revenue of RM120,000 and has total costs of RM95,000, leaving a profit of RM25,000. On its own, RM25,000 sounds healthy.
But the owner also looks at the statement of financial position. It shows that RM40,000 is tied up in unsold stock and RM18,000 is owed by customers who have not yet paid.
The picture is richer. The business is profitable, yet much of that profit is not in the bank.
The owner gets this insight not from one number but from how profit, what the business owns and what it is owed relate to each other. It tells the owner whether to reorder stock, chase slow-paying customers or take money out for personal use.
Lenders such as banks
If a business wants to borrow, a bank will look at its accounts first. The bank wants to know whether the business is profitable enough to repay a loan and whether it already owes a lot. Accounts give the bank an objective basis for its decision, so it does not rely on the owner’s word.
A lender reads the figures differently from the owner. The owner celebrates profit, while the bank asks a harder question: can this business meet its repayments even in a poor month? So a lender studies how much the business already owes, how quickly customers pay and whether profit is steady or jumps up and down.
In the stationery shop, a bank would notice the RM18,000 owed by customers and ask how old those debts are. Money owed for two months is reassuring.
Money owed for eight months is a warning sign. That is why accounts must show a clear, honest breakdown and not just totals.
Suppliers
A supplier deciding whether to sell goods on credit wants to know whether the business is likely to pay. The accounts help the supplier judge whether it is safe to offer credit and how much. A business that pays reliably and keeps clear accounts finds it easier to deal with suppliers.
A supplier’s interest is narrower than a bank’s. They usually extend short credit, perhaps thirty days to settle an invoice, and do not lend large sums for years. What they most want to see is whether the business can pay its short-term debts as they fall due.
So a supplier looks closely at current assets (like cash and money owed to the business) set against current liabilities (like money the business owes). A business with plenty of cash compared with what it owes soon is a safer customer to give credit to.
Employees
People who work for a business, or want to join it, care about its health. A profitable, stable business is more likely to offer secure jobs and pay wages on time. Employees may not read the full accounts, but the information matters to their livelihoods.
Pay levels depend on the role, the employer and the job market, so accounts do not tell an employee what any salary should be. Those figures are agreed between worker and employer. What the accounts do signal is stability.
A business that has made a profit for several years and is not drowning in debt is more likely to keep paying wages reliably. One that swings from loss to loss is less certain.
The tax authorities
Governments use a business’s accounts to work out how much tax is due. Accounts must therefore be prepared consistently, following accepted rules, so the figures can be relied on. That is one reason accounting follows fixed conventions and does not let each business invent its own approach.
If every business measured profit its own way, tax could not be assessed fairly, and no two sets of accounts could be compared. The need for reliable, comparable figures is one of the strongest forces pushing accounting towards shared rules.
A common confusion: users are not all the same
Beginners often assume “the accounts” tell everyone the same story. In fact each user reads them through their own decision. The owner asks is my business growing? The bank asks will I be repaid? The supplier asks will this invoice be settled? The tax authority asks what is the true profit? The same income statement serves all of them, which is why it must be neutral.
A related mix-up is thinking internal users always know more than external ones. They often do have more detail, but external users have a right to a fair summary, and that right is what forces the figures to be honest.
How this connects to concepts you will meet
This topic opens the door to the accounting concepts and conventions you will meet throughout IGCSE Accounting. The matching concept, for example, says costs are set against the income they help earn in the same period, so profit is not overstated for any one reader. Consistency means a business measures things the same way year after year, so users can compare one year with the next.
None of these rules would matter if accounts were private notes. They matter because strangers rely on them. Seeing the users first makes every later rule feel purposeful.
Why many users shape how accounts are prepared
Because so many different people rely on accounts, the accounts must be objective, consistent and comparable, and not shaped to flatter the owner. That is why accounting has rules and concepts. They make the figures trustworthy for everyone who reads them, inside and outside the business.
Bringing it together
When you prepare a statement, remember you are preparing it for a reader, such as an owner, a bank or a supplier, who needs a clear, honest picture. That is why neatness, consistency and following the rules matter so much. A useful habit, whenever you finish a figure, is to ask: “who would read this, and would it mislead them?”
That one question covers most of the good practice the syllabus later spells out.
If you want to see why accounts are kept, as well as how, one of our teachers can build a lesson around the way you learn best. The ideas then stick and are not just memorised. Book a trial class.