According to Marshall, McManus and Viele (2004), accounting is “the process of identification, measurement, communication of information about a business for the purpose of making decisions and informed judgment” (p.3). Decision makers look at balance sheets, income statements, changes in the owner’s equity and cash flow statement as documentation of the viability of an entity. Misrepresentation of the financial statements can place doubt of profitability in any company. The need for accountability and regulation of accounting practices is important in preserving trust in the business community. Entities have ethical and legal obligations in financial reporting.
The information provided in the financial statements under the financial accounting system is used by auditors to analyze the businesses financial position. Maintaining an accounting standard for report for external users is al... ... middle of paper ... ...nancial information and how to analyze the information reported. While each type of accounting is necessary, they are aimed at different audiences and have various standards that are necessary to adequately evaluate the financial position of the company. Financial accounting is primarily the function of putting financial statements together in accordance to GAAP so that the information can be viewed and analyzed for external users, including auditors and shareholders. Managerial accounting is the process of compiling financial statements that will aid the management team in making decisions for the organization.
It's important as it offers quantitative information of financial dynamics to various stakeholders which will be found in making a monetary decision. These stakeholders include traders, management, administration, suppliers, financiers, regulators etc. Business accounting assists in making lots of short-term and permanent business decisions which helps an organization to increase as well as penetrate the market. The principal function of accounting is to make details of all trades that the organization enters into. Realizing what qualifies as a business deal and making an archive of the same is named bookkeeping.
The Basic Concepts Upon Which Financial Accounting is Based Terms of Reference To prepare a short report, which will explain the basic concepts upon which financial, accounting is based. The need for accounting standards and why companies must comply with them. The Need for Accounting Standards In order for the Profit and Loss and Balance Sheets accounts to make sense to users who rely on them for their decision making purposes, there has to be consistency in the way items are treated in the financial statements. Without this agreement it would be impossible to use them to compare business performance. Limited companies have a statutory duty to comply with these rules and it is the job of the qualified auditor to check this compliance.
In addition, the objective of the financial statement user is to find and interpret this data in order to have answers for questions regarding the organisation such as: Would an investment generate returns, or what is the degree of risk inherent in the investment (M. Fraser, Ormiston 1998). Additionally, an organisation’s financial conditions are the main concern to investors and creditors. Investors are simply the capital providers and they rely on an organisation’s financial conditions for both the safety and profitability of their investments. Moreover, investors must to know where their money was spent and where it is now. The financial statement of balance sheet reports that kind of issues by providing detailed information about an organisation’s asset investments.
Financial managers must maintain an understanding of legal and regulatory issues when planning, forecasting, analyzing, and evaluating the appropriate steps to grow the firms bottom line (Byrd, J., Hickman, K., & McPherson, M., 2013). Whether the existing market structure is perfect or monopolistic competition, oligopoly, or a monopoly, the financial manager has the task of understanding and analyzing the difficulties that each market structure poses. This paper will analyze the challenges a financial manager will encounter and incorporate how liquidity, competitiveness, and efficiency affects financial managers. Financial Manager Challenges Besides gathering, analyzing, and translating data, financial managers and the finance department as whole must also be able to present the data they collect and analyze. In the article titled “Challenges for Financial Managers in a Changing Economic Environment” author Livia Ilie posits that responsibilities that once focused on financial planning budgeting now require strategic evaluations and professional communication of this information to subordinates and managers.
In research, there are three main form of management accounting to control the cost in an organization effectively and efficiently. They are financial accounting, cost accounting and cost management. Financial accounting is used authoritatively to prepare to account information for parties who are outside the organization, such as stockholders, suppliers and banks. Its’ purpose is to provide enough information to make decisions on business cost control and to analyze the business budgets (Baldvinsdottir et al.2009). This role will consummately help the company to forecast their capital in the future.
A business uses accounting to determine operational plans in the future, to review past performance and to check current business functions. Management and financial accounting have different audiences, as investors are not usually involved in the day-to-day operations of the business but are concerned about their investment, whereas managers need information quickly to make daily business decisions. Financial accounting produces information that is used by external parties, such as shareholders and lenders yet management accounting produces information that is used within an organization, by managers and employees. The main objectives of financial accounting are to disclose the end results of the business, and the financial condition of the business on a particular date. The main objective of management accounting is to help management by providing information that is used to plan, set goals and evaluate these goals.
Financial statements are intended to be understandable by readers who have "a reasonable knowledge of business and economic activities and accounting and who are willing to study the information diligently." Owners and managers require financial statements to make important business decisions that affect its continued operations. Financial analysis is then performed on these statements to provide management with a more detailed understanding of the figures. These statements are also used as part of management's annual report to the stockholders. Employees also need these reports in making collective bargaining agreements (CBA) with the management, in the case of labor unions or for individuals in discussing their compensation, promotion and rankings.
Planning, Controlling, Decision Making We should begin by planning, controlling and decision making. Planning includes setting objectives and determining how to accomplish them. Controlling includes gathering feedback to guarantee that the arrangement is, no doubt legitimately executed. Decision making includes selecting a course of action from contending choices (Garrison, 2012). Balance sheet, Income statement, statement of cash flows, and statement of stockholders’ equity The balance sheet is one of the major financial statements used by accountants and business owners.