What is the contribution of Financial Accounting to the different sectors of economy
Introduction
The purpose of accounting is to provide the information that is needed for sound economic decision making. The main purpose of financial accounting is to prepare financial reports that provide information about a firm’s performance to external parties such as investors,creditors,and tax authorities. Managerial accounting contrasts with financial accounting in that managerial accounting is for internal decision making and does not have to follow any rules issued by standard setting bodies. Financial accounting, on the other hand, is performed according to Generally Accepted Accounting Principles(GAAP) guidelines.
Financial Accounting
Financial Accounting is the field of accountancy concerned with the preparation of financial statements
for decision makers, such as stockholders, suppliers, banks, employees, government agencies, owners, and other stakeholders.
Role of Financial Accounting
The role of accounting in business is to help interested parties, both internal and external, to make business decisions. The accounting process consists of measuring and summarizing business activities, interpreting financial information, and communicating the results to management and other decision makers.
Financial accounting generates some of the key documents, including profit and loss account showing the method of business traded for a specific period and the balance sheet which provides a statement showing mode of trade in business for a specific period.
Without these financial documents it would be impossible to run the business or to make decisions regarding the business.
The accounting process consists of measuring and summarizing business activities, interpreting financial information, and communicating the results to management and other decision makers.
Management accounting also motivates managers and other employees towards achieving organizational goals. A well motivated staff performs better and is more productive. Organizations are able to achieve their goals if employees are well motivated.
Financial accounting generates some of the key company documents, including profit and loss statement or P&Ls. P&Ls show the financial details of a business over a specific period. Financial accounting also produces the balance sheet which provides a snapshot of a business’s assets, debts, and equity at a specific moment in time.. Financial accounting also helps the managers in the business to manage more efficiently by providing them views of financial information which may include monthly management reports presenting costs and profits against budgets, sales, or other key metrics. Reporting can be customized for the specific needs of the business.
Without these financial documents it would be very difficult to run the business or to make decisions regarding the business.
What is the contribution of Financial Accounting to the different sectors of economy
- Financial accounting is very important in an organization. It helps track and account incoming and outgoing funds and balance the books on a daily, weekly or monthly basis.
- Accounting is very important for textile sector also, It helps to manage business into various platforms such as inventory, sales, purchasing, shipping and other related functions.
- Investors and tax professionals need hard facts based on numbers that already exist, so they can properly assess a company performance. Financial accounting reports provide the precision these professionals need to gauge the solidity of a company.
Small-business owners use financial accounting to communicate information to external parties. People and organizations that use the financial information of a company, but are not part of the company, are known as external users of financial statements. Owners communicate the financial health and well-being of a company to external users through the financial statements, which are the end result of recording financial accounting transactions. External users will examine the financial statements and compare the results to their own expectations, forming an assessment of the company. Common external users include banks, suppliers and leasing companies.
While managerial accounting is more geared towards internal users, financial accounting is also used for internal information communication. Internal users of financial accounting information include the finance team and employees who may be interested in profit-sharing or stock-based compensation agreements. Small-business owners can use financial accounting information to share company strengths and weaknesses with employees. For small public companies, a common metric is the company’s share price. Owners may tie bonus and compensation amounts to share price and encourage employee productivity accordingly.
Financial accounting is significant in informing investors, tax professionals and creditors of a company’s performance over a period of time, Additionally, these reports are used to do a companys taxes, so they must be 100 percent accurate.
Small-business owners use financial accounting to communicate information to external parties. People and organizations that use the financial information of a company, but are not part of the company, are known as external users of financial statements. Owners communicate the financial health and well-being of a company to external users through the financial statements, which are the end result of recording financial accounting transactions. External users will examine the financial statements and compare the results to their own expectations, forming an assessment of the company. Common external users include banks, suppliers and leasing companies.
While managerial accounting is more geared towards internal users, financial accounting is also used for internal information communication. Internal users of financial accounting information include the finance team and employees who may be interested in profit-sharing or stock-based compensation agreements. Small-business owners can use financial accounting information to share company strengths and weaknesses with employees. For small public companies, a common metric is the company’s share price. Owners may tie bonus and compensation amounts to share price and encourage employee productivity according.
Also Study: Managerial Accounting in Construction Industry