Need of doing Financial Accounting
The main aim of doing this method of accounting is to help the users of Financial Statement to take a sound decision for their investment purpose. These accounting is designed to provide financial information to the users of Financial Statement by analysing the Financial Statement. Financial Accounting Assignment Help is required by students studying Accountancy.
Accounting is divided into namely 3 segments:
- Managerial Accounting
- Cost Accounting
- Financial Accounting
Definition of Financial Accounting
Financial Accounting is defined as a process which includes recording, classifying, summarizing, interpreting and finally preparing the financial Statement using the financial information available. It helps the users to determine the correct profit or loss of an entity and shows the true financial position of the business at one particular date.
Characteristics of Financial Accounting
- Financial Accounting is done mainly for the purpose of external reporting.
- Financial Accounting is done to prepare financial Statement which is prepared at the end of Accounting period.
- Financial Accounting provides an overall view of the business.
- Financial Accounting focusses on aspects such as expense, income.
- It is necessity that Financial Accounting must comply with the statute and application accounting policies such as Generally Accepted Accounting principles (GAAP).
Components of Financial Accounting
Financial Accounting leads to preparation of Financial Statement which has 4 components namely:
- Balance Sheet: It includes all Assets and Liabilities and displays the true value of an entity. It shows the resources through which Assets are financed i.e. whether it is financed by banks or whether Shareholders have invested their money.
- Profit and Loss Account: As the name suggest, it displays the result of entity at the end of a specific period.
- Cash Flow Statement: It shows the way by which an entity has generated cash and have used them in the business in an accounting period.
- Notes to Accounts: It displays supplementary information which forms an integral part of Financial Statements. Notes to Accounts generally include information about segment profit, accounting policies, accounting standards etc.
Objectives of Financial Accounting
- Evaluation of Financial Statement
- Timely generation of reports
- Generation financial information which can help in taking economic decisions.
- Displaying Financial Situation of an entity
- Accurate recording of transaction and doing a thorough analysis.
Purpose of Financial Accounting
- Analysing the present Financial Condition of business.
- Checking and comparing inter departmental performance.
- For make and Buy Decisions.
- Analysing and comparing the past performance of business with present performance for the betterment of Future.
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