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Every organization, irrespective of its size or ownership pattern, has
to manage its finances. The overall objectives of an organization
cannot be achieved in the absence of financial management. Many
organizations fail in their objectives because of financial
mismanagement and this failure rate is quite high among the small
business enterprises. Hence, financial management is vital for all
types of organizations, profit making as well as non-profit making. In
case of non-profit making organizations also the effectiveness and
performance depends on their financial resources management.
When we attempt to analyze the financial functions of an organization
we find that funds (capital) have to be:
Ø Allocated for various activities
Ø Used effectively
Further, the results of all these have to be recorded also. All this
brings to fore a three dimensional financial process:
Ø Financial management
Ø Management Accounting
Ø Financial Accounting
Ø All these three are at the same time separate yet overlapping areas
of thee financial functions of an organization.
1. Oval: Financial Reporting Oval: Management Accounting Oval: Financial Management Financial
Accounting deals with the measurements and reports of the financial
position of the organisation and providies this to external users such
as the shareholders, creditors, government agencies, etc.
2. " Finacial Accounting is the art of recording, classifying and
summarising in a significant anner and in terms of money,...
... middle of paper ...
...ctual performance with budgeted
performance is called budgetary control. This is a crucial activity
because every organisation has to evaluate whether the activities and
operations are going in the right direction for achieving the
organisational objectives. The actual performance has to be compared
with the budgeted performance on the basis of actual level of
activity. The actual performance of each area of responsibility is
measured through general accounting system in financial terms.
Financial managers also go in for periodical review of budgetary
performance and then apply corrective measures to ensure that the
future performance is as per the budgets.
There are many other aspects related to financial management and it is
suggested that an entrepreneur should utilize the services of a
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