When we invest money in any company or purchase share, we always expect good return from that investment, which is a general thinking. But the question arises is that how one come to know whether it gives good return or not? So you need to know well about the company and its past record. In the same way when a finance manager of a company take any financial decision he can’t take it as based on his assumption unless to seeing the financial data which is systematically recorded through financial accounting.
Financial accounting is a process of recording, summarizing, reporting of transaction of an organization in a systematic way intention to provide accurate picture of its financial position and performance. It is a financial statement of a business which mainly includes profit & loss account, balance sheet, cash flow statement.
Profit and loss account is a details record of trading of a particular business over a specific period (one year) which shows net profit or net loss.
Balance sheet is another statement under financial accounting which indicates total assets and liabilities of a business over one financial year.
Cash flow statement describes total cash inflow and cash out flow of business of one financial year.
Financial accounting information is intended for both organization as well as its stakeholder. By this information share holder who invests in the company come to know how well the company is doing. When they sell the share by this information they can judge the present worth of their investment. Similar information also needed for the prospective buyer of those share. If the company wants to borrow money from outside, supplier also need information about the company which will show the company is sound enough to recover the credit. To give investment related advice, investment advisor also need financial information about a company. Govt. also come to know whether the company paying tax accurately or not. Employee of the organization comes to know the capability of the company to pay their current compensation and future retirement’s benefit and they can also asses their job securities. Top management can take sound financial decision by using the same information and can take control over the company.
Bases on the important of financial accounting it is suggested that every organization should maintain financial record at the same time they should provide true and fair view of financial condition and its result. It means information which used is correct as well as maintains all rules of financial standard.
PGDM 1st Year 2012-14