Financial accounting is the process that is used to track the financial transactions of any company. It helps in keeping the record of all the financial dealings. Transactions are summarised, presented and recorded in the form of financial statements or financial reports. The cash flow statement, profit and loss statement, and the balance sheet statement are the three main financial statements; every organisation is required to maintain these financial statements. Financial accounting has a set of principles. The use of the accounting principles goes through a selection which depends on the reporting and regulatory necessities that the business deals with. The financial accounting considers monetary values as a parameter of measuring economic performance rather as a factor of production.
Double Entry Accounting System-
Most financial transaction that a company does is recorded by the double entry accounting system. Double entry implies that there are at least two accounts that a transaction affects. This method of accounting eliminates the chances of discrepancies.
Accrual Basis Of Accounting-
In the case of accrual basis of accounting, the amount is only reported when they are earned. For following the accrual basis of accounting, financial accounting is necessary.
What Is The Primary Purpose Of Financial Accounting?
- The major objective of financial accounting is to get the financial reports ready which demonstrates the performance of a company to some external parties such as the tax authorities, investors etc.
- One of the vital purposes of financial accounting being the assessment of the profits of a company so that the employees can make better decisions and choices.
- It also aims to correlate the internal management with the business transactions.
- It regulates the amount of tax liability that is incurred by the government.
- In order to make decisions it calculates the business transaction and correlates those calculations to the external users.
Why Financial Accounting Is Important For Business?
A business is the amalgamation of so many things. The most significant among all is financial accounting. It is the process that is used to let the interested parties know about the financial health of the business. The parties see whether the growth of the business matches their expectations. The capability to provide information through financial accounting is a crucial aspect without which the investors cannot make precise decisions of a business. This procedure is used also by the small business owners or the entrepreneurs in order to maintain a report of their business activities in account books and they also get a chance to analyse their competitors. The double entry method is used in the financial accounting. Using this method helps in keeping a vivid prospect of the business activities.
What Is The Role Of A Financial Accountant?
- The role of a financial accountant differs from a public accountant. They perform various functions.
- Some of the financial accountants work straight for companies and do the internal financial tasks.
- Financial employees work for one organization only.
- Their work is to make the internal financial statements ready and do tasks such as contributing to their employer’s operational, strategic and financial plans.
- Financial accountants in smaller companies make the transactions physically in ledgers and records. But in bigger organizations, the financial accountants only review the entries made by other employees.
- The financial accountant has to report to the senior management team as well.
Financial Accounting Notes :
Following are the common functions of financial accounting:-
- Balance sheet- The balance sheet is mainly divided into three segments
- Assets- The assets include all the possessions of an organisation like equipment, buildings, cash, insurances, etc.
- Liabilities- The liabilities are mainly obligations that are payable at the date of the balance sheet.
- Stockholder’s equity- The stockholder’s equity is the contrast between the amount of liabilities and amount of the assets.
- Statement of Stockholder’s equity- The statement of stockholder’s equity includes the changes that are made in the stockholder’s equity. It is also called contributed capital.
- Income statement- The income statement records the profitability of a company during a specific time. It is also a financial statement that records the financial accomplishments of a company.
- Statement of cash flow- The statement of cash flow defines the change in a company’s cash.
Tips For Students Facing Problems In financial accounting :
Accountancy is the subject for the great mathematical minds. If passionate about the subject, one can achieve great success pursuing it. Be it a good salary or numerous other opportunities, this field helps the students in getting a favourable outcome. But the way to success is far from being easy for an accountancy student.
- Precise accounting record maintenance becomes very vital for business development. Hence, the proper know how of the accounting technique is very much mandatory for students who want to be a successful businessman in future.
- A well-acquaintance with the concepts is much needed for a better understanding of the financial accounting.
- Attending your lectures without going through the assigned readings is one of the blunders that the students make. It does not work especially in the case of accounts. Before you go to each lecture, go through the assigned reading once and try to solve the exercise problems by yourself, which will help you get a better idea of the topic or chapter. The purpose is to give you a correct direction of what your professor is going to teach.
- Ask questions in the class about anything that you didn’t understand. Always make notes of the lectures that you attend and focus especially on the numerical. Match your own exercise problems with your professor’s. Compare your notes with the professor’s and see where you have gone wrong. After the lecture is over, go to the library and go through the notes.
- Give your notes a precise study when you are preparing for the exams. Do your own research off course, but keep the class notes on priority.
- Do not stuff yourself with enormous and irrelevant information.
- Do not make your exam answers needlessly lengthier. Write the exact answers with correct explanation. Do not repeat lines to fill the pages.
Financial accounting is indeed a complicated topic without any doubt. It needs concentration and hard work. Students, who want to pursue accounts as a career, must keep their studies to the priority. The job of an accountant comes with a huge responsibility, therefore being passionate is very much required.
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