Financial accounting refers to the
recording of the financial transactions of the business which includes the company's every day transactions. Financial accounting
is very important in reviewing the business results periodically. They are very helpful in finding out whether the business
is getting the owner profits or loss. The business owner decides the future course of action based on the results of the financial
accounting (Russels nd). Financial accounting can be carried out for depreciation also.
FINANCIAL ACCOUNTING INVOLVES:
Financial accounting is related to
the accountancy which is mostly involved with the research of economic report for all of the conclusion creators (Porter and
Norton 2000). They include mostly stock holders. The basic requirement for financial accounting is to moderate chief and major
representative issues by determining and monitoring all of their presentation and thereby, exhibiting the report to the entire
concerned person. Financial accounting process includes two types of transactions.
• Analyzing transactions
• Recording transactions
ROLE OF FINANCIAL ACCOUNTING:
Financial accounting generates some
of the key documents which includes, profit and loss account showing the method of business traded for a specific period and
also the Balance sheet which provides a statement showing mode of trade in business for a specific period.
• Role includes recording financial
transactions thereby collecting money from all sales, wages, etc.
• Helping the managers in business
to manage more efficiently by means of preparing standard financial information which includes monthly management report presenting
the costs and profits against budgets, sales and investigations of the cost.
PRINCIPLES OF FINANCIAL ACCOUNTING:
Financial accounting is based on several
principles. These are called as Generally Accepted Accounting Principles (GAAP) (Williamson 2007). These include the Business
Entity Principle, the Objectivity Principle, the Cost Principle, and the Going-Concern Principle.
• The Business Entity Principle
states that, every business requires to be accounted for separately from the proprietor. Personal and business-related dealings
should not be varied.
• The Objectivity Principle states
that, the information contained in financial statements requires being objective and not based on opinion.
• The Cost Principle refers that,
the information contained in financial statements requires to be based on costs incurred in business transactions.
• The Going-Concern Principle
states that the business will continue operating and will not close or be used.
IMPORTANCE OF FINANCIAL ACCOUNTING:
• It provides stakeholders legal
information such as financial accounts in trading
account and balance sheet
• It shows the mode of investment
for shareholders
• It provides business trade
credit for suppliers
• It notifies the risks of loan
in business for Banks and lenders
BENEFITS OF FINANCIAL ACCOUNTING:
Financial accounting is useful in producing
financial statements for all purposes, and also specifying the information of a business unit production for selection and
also for performance opinion.
LIMITATIONS OF FINANCIAL ACCOUNTING
One of the major limitation of Financial
accounting is that it doesn’t take into account the non monetary facts of the business like the competition in the market,
changes in the value for money etc. another limitation of financial accounting is that it offers you an overall report rather
than a product wise report in the business.
References:
‘Financial accounting’
by Gary A. Porter and Curtis L. Norton.
‘Financial accounting concepts’
by Duncan Williamson
'Accounting-Three major areas’
by Michael Russels
www.allbusiness.com [online source]
www.wikipedia.com [online source]
