About Financial Accounting
It is the main term in business which helps the people to know about the financial position of the firm with the help of financial statements. In other words we can say that financial accounting helps in keeping track of the records along with creating the summary of financial statements or transactions is known as book keeping. In simple way we can say that when the above information is displayed in reports for public use then it is known by the name as financial accounting.
Financial accounting is aimed to provide correct information about the company to outside parties. Managerial accounting is another type of accounting that is aimed in helping the managers to make their entire decisions about the company in best manner. Reports are prepared in financial accounting which includes
- Income statement-
It is the statement which is best to describe the profit and losses along with expenses and gross which can be easily carry forward to next year.
- Balance sheet-
It helps in showing the firms assets along with liabilities at a given period of time. Cash flow statement is an analysis that will show the flow of cash out of the firm at a given period of time.
All the above reports are prepared in the best manner for internal planning along with controlling and decision making. The main aim of these reports is to provide decision making which helps the decision maker to make the right decision for budgeting and any other small issues.
Main objectives of Financial Accounting
Financial accounting is the main process by which company’s revenue and expenses are recorded and reported in the best manner. It helps in reflecting the business activity which helps the companies in meeting their legal along with fiscal and statutory requirements. In short the main aim of financial accounting is to provide the correct information to the end users. It will cover down
Financial accounting should be relevant in nature that will easily help the reader to make the entire decision of the firm in the best manner without creating any kind of problem for the same for the company. If the information is relevant then end users will make the correct decisions for the well being of the company.
- Should be reliable in nature-
Accounting information should be reliable in nature that will help the companies along with public accountant to verify the accounting treatments. In short it should be free of bias and not mislead in current scenario.
- Should be comparable in nature–
Information present in financial accounting should be comparable in nature that will easily help the investors to invest when and where. If the investors are having comparable data then they will able to make their judgment for investment opportunities for present and future scenario.
Information present in financial statement should in consistent in nature that will allow the decision maker to take the best decision regarding the same for the company.
Importance ofFinancial Accounting
Accounting is related to service activity that plays an important role for the company. It tells us about the financial position of the company which further helps the decision maker to take the entire decision. This decision maker will cover down investors along with management and government along with suppliers and financiers. It also helps in making the short as well as long decisions which further helps the company to grow in market. Accounting is important in every area that will further help in
- Evaluating the performance of the business-
It will reflect the operations of the entire business along with statement of profit and loss that needs to be prepared at the end of the year.
- Managing cash flow-
If the statement is prepared in the best manner then it will help the company in managing the cash flow of the business in proper way without wasting any penny for the same.
- Helps in recording the liabilities–
If the financial accounting statement is prepared in the better way then it will help in recording the liabilities that will include provident fund along with pension fund with sales and income tax.
- Helps in creating the budget-
It will also help in creating the budget on the past data which further helps the companies in making the best decision.
Advantages of Financial Accounting
Some of the best part of financial accounting is that it helps in
- Controlling the budget of the firm–
Accounting helps in creating and controls the budgets in an effective way. It helps in monitoring the business budgets. It will plan in an entire way without creating any kind of problem for the same. Apart from that it also helps in keeping systematic records that will help the decision maker to make the entire decision about the firm or company.
It helps the company in entire planning which further helps the decision makers to determine the selling price along with reducing the cost and increase the sales. Balance sheet is the statement which helps in showing the true picture of the financial conditions of the business at the end of the year.
Role of Financial Accounting
The financial accounting function is accountable forperiodically reporting monetary information to entrepreneurs in any business. Concerned individuals, for example, customers, regulators, investors, and creditorsfrequently require this financial information. If banks won’t depend on your accounting records, you will experience difficulty securing loans for your business. Financial accounting manages the sums you owe to providers, what clients owe you, payroll costs, operating costs, and accessible cash. You can utilize financial accounting to study important parts of your business, for example, monthly sales or the explanations behind high costs in one month.
System of Control
Financial accounting creates a fundamental set of financial controls for your business. Financial accounting allows you to oversee such duties and their outcomes all the more intently. Sound financial records show financial controls and oversight that decrease the danger of theft and fraud, something that investors want to see.
As an entrepreneur, you can utilize financial accounting to do ratio analyses and utilize those ratios to do a full analysis of different parts of your business. You can gauge your business’ m cash position or estimate your profit or sales ratio and contrast it with your past performance or competitor’s performance. Financial accounting enables you to define your future strategy and measure the accomplishment of this strategy with the financial information created from another period.
To be a significant, value-added function, your company’s financial accounting should use certain conventions. It must be applicable, which implies the information influences stakeholder decisions. It must show objective information that can be estimated and stated by acknowledged guidelines. Financial accounting should be practicable, so the expense of introducing this data must not surpass its advantage. The information that you demonstrate must be reliable, and you should carefully follow the similar accounting standards for all records.
- Scope of Financial Accounting:
The scope of accounting is explained in the traditional meaning of amounting given 1961 by the AICPA as Accounting is the method of classifying, recording and summarizing noteworthy way and as far as money transactions are part of aninterpreting and financial the outcome thereof.
- Acknowledging the Events and Transaction:
Accounting recognizes event and transaction, which can be stated in terms of cash and get change in the financial position of a corporateunit. An event (whether external or internal) is an occurrence of a result to an entity (e.g. utilization of raw material for production). An entity implies an economic unit that performs economic activities.
- Calculating the identified Transaction and Events:
Accounting measures the events and transaction in terms of money.
It is the procedure of entering the transaction as well as events in the books of actual entry in the sequential manner i.e. date wise.
It is the procedure of posting of data in the ledger so that transaction of the same type isgathered at one place.
It is focused on the making of Financial Statement like Balance Sheet, Income Statement, and Cash Flow Statement.
It is focused on the formation of the relationship between the several groups of items got from Balance Sheet or Income statement or both. Its objective is to find the financial strengths as well as weakness of the enterprise. It gives thefoundation for interpretation.
Interpreting is the final stage of the accounting procedure. It is focused ondescribing the significance of the relationship set up by the analysis. Actually, interpretation is theaccountant’skey function in the existing condition since the regular work of classifying, recording, and summarizing.
It is focused on the spread of analyzed, summarized, and interpreted data to the user to allow them to make coherent decisions.
Golden rules of accounting are the fundamental accounting rules based on which accounting entries are recorded.
The rule identified with Personal record states charges the beneficiary and credit the provider. At the end of the day, if an individual gets something, the beneficiary’s account will be charged and if an individual gives something, giver’s account will be credited.
For instance, if Mr. X gets cash of Rs. 10,000 from Mr. Y then in the books of Mr. Y, Mr. X will be recipient so account of Mr. X will be debited with a sum of Rs. 10,000.
The standard identified with real account states charges what comes in, credit what goes out. At the end of the day, if something comes into business, it will be charged and if something leaves business, it will be credited.
An asset brought for money would be accounted according to real account wherein resource is the thing that came into the business, so asset account will be charged and money is something that received out of the business, so cash account will be credited.
The rule related identified with nominal account states that withdraw all losses and expenses, credit all wages and gains. In short, if any loss or cost is brought about for the business, cost or expense account will be charged and if any salary or increase is earned in a business, income account or profit/gain account will be credited.
For instance: If salaries are paid to workers then salary is a cost and thus, salary account will be withdrawn. Moreover, any rent acquired will be credited to rent account as it is a salary.
Career Alternatives for Financial Accounting
Most of the graduatesentering professional financial accounting professions will prepare in public practice, providing with audit and business advice services (addingtax advice) to clients. Career openings are generally available with the investment banks, insurance companies, building societies management consultancies, and public sector companies. These may incorporate stockbroking, corporate treasury management, tax work, IT in the financial sector, solicitor, company secretary, financial information services, and pension’s management.
Thus we can say that there is need of financial accounting as it helps in stating the true picture about the firm regarding the financial position. In the above article we have discussed about financial accounting along with scope and advantages that will help the students in learning the basic about the subject. It will prove best for them as they can get detailed information about the subject.
Not only this, student will also get the benefits from online experts who will work for them in the best manner by stating each and every term in simple way so that they can perform well in academics.
Evelyn W. Minnick is a famous expert in the accounting. She is an expert who is best in delivering online tuitions to the students from a long time. She holds bachelor degree in accounting as well as, master degree or MBA in accounting. She is always ready to impart good knowledge and help the students with her outstanding knowledge. Her blogs on accounting are best that will help you to understand the basic rules of accounting.