Financial accounting can be identified as one of the key branches within the field of accounting. This article is going to explain about the importance of financial accounting and reporting for business organizations.
What is Financial Accounting
In financial accounting and reporting, all the business transactions are recorded based on the accepted international accounting standards, which is known as Generally Accepted Accounting Standards (GAAP) and presented in a report format or as financial statements. These financial statements include the income statement, balance sheet and the cash flow statement. These statements need to be prepared accurately in order to have a clear picture about the company performance during a period. The income statement / profit and loss account indicates the generated profit or loss within a particular period. The balance sheet dictates the company’s assets and liabilities within a particular period. The cash flow statement shows the ways in which the cash inflows and outflows occur during a particular period.
Companies issue financial statements at the end of a specific period in order to create awareness about the company performances for the external parties such as stockholders, investors, etc. When a company is expected to issue shares for the general public, these financial statements need to be presented to them.This information is reviewed by the competitors, employees, investment analysts, tax authorities and the customers. These financial statements add value to the company as it indicates the company performance.
Normally, the financial accounts are prepared based on the previous year performances. They represent an outline for the finance managers. It is based on these records that the managers plan for the future. Therefore, these records are highly useful to make strategic decisions on behalf of the organization. The financial managers have the following responsibilities in preparing this financial information.
- Maintaining accurate records such as accounts, ledgers and books.
- Making sure of the accuracy of the invoices that are raised and bills that are paid.
- Checking and monitoring account balances.
What is Financial Reporting
In preparing and presenting financial reports, following documents need to be included:
- The financial statements of the company (Income statement, Balance sheet, Statement of cash flows, and statement of changes in equity)
- The notes related to the financial statements.
- Documents relevant to press releases and conference calls regarding the quarterly earnings and related information.
- Quarterly and annual reports for the shareholders.
- Quarterly and annual financial reports presented to the governmental agencies and to the Securities and Exchange Commission (SEC)
- Financial information needs to be posted on the official website of the company.
All these documents need to be prepared carefully as it helps to create a good image on the business organization.Therefore, finance manager plays a key role in every organization in preparing those financial documents.