Why Do Stakeholders of an Organization are Interested in Financial Accounting?
Added on -2021-02-21
Financial accounting (FA) is a process which is useful in tracking the financial transaction of company for particular fiscal year. Financial accounting helps in presenting the financial information in the structured manner for better understanding and effective decision making for future success and development of the business. Purpose of FA FA helps in providing in-depth information of the organization fiscal state and it also helps in sound decision making in an accurate and efficient manner.
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INTRODUCTION Financial accounting (FA) is a procedure which is useful in tracking the financial transaction of company for particular fiscal year.It is an effective tool which helps in recording, summarizing and presenting the financial records in a systematic and efficient manner. 1
This study will highlight, the purpose of FA, and also examine why stakeholders of the organization are interested in financial records.This study will record financial transactions using double entry book keeping. It will also prepare final accounts in compliance with proper principles, standards and conventions. Furthermore, this study prepare bank reconciliation statement and also reconcile control systems. Taj Accountants is a small business accounting firm based in London. They provide effective accounting services such as payroll, taxation services, advice, business planning, book keeping, etc. Part A 1. FA and purpose. Financialaccounting(FA)isaprocesswhichisusefulintrackingthefinancial transaction of the Taj Accountants for particular fiscal year.It is an impelling tool which helps in recording, summarizing and presenting the financial records in a systematic and standard manner.This information is presented in financial reports like statement of financial position, stockholder's equity, income statement and statement for cash flow(Lawrence, 2019). Financial accounting is done by keeping in mind all the financial reporting standards, conventions and principles such as (Generally accepted accounting principle) GAAP.FA is useful in critically analysing thefiscal reports of companyand also allocating the resources. It helps in determining the growth in the Taj Accountants by comparing it with the previous statements. Financial accounting helps in presenting the financial information in the structured manner for better understanding and effective decision making for future success and development of the business. There various users of financial information which mainly includes internal and external stakeholders and it helps in better decision making.It is useful because it aid in evaluating the current financial state of the company in a snapshot.This helps in better understanding and formulation of plans and strategies.FA plays a crucial role in determining the liabilities and asset of organization.It also helps in comparing the financial position with its competitors in order to attain desired goals and objectives. Purpose of FA FA helps in providing in- depth information of theorganization fiscal stateand it also helps in sound decision making in an accurate and efficient manner.The aim of FA is to provide 2
necessary data to stakeholders of the Taj Accountancy. It is beneficial in determining the financial strengths of the organization. It is very useful in communicating the information to the stakeholders by formulating various financial statements on a timely manner with utmost accuracy. This provides the snapshot of the financial health of the Taj Accountants in order to attain greater heights.The main reason of FAis that it helps in determining the best performing sector of the organization in order to achieve desired objectives and leads to further growth and success (Lawrence, 2019). It gives relevant and reliable information to the stakeholders which helps in strategic decision making.It is useful in distinguishing the resultswith the past historic statements to evaluate the profitability of the organization over the particularspan of period period.It helps in controlling the cost and increasing the overall productivity of the Taj Accountants.FA is usefulin determining the flaws and take necessary action to resolve the issue in an accurate and systematic manner. It helps in ascertaining the areas which generates higher profit and also focuses on evaluating the factors which leads to higher manufacturing cost. It is very crucial because it helps in forecasting the needs of the future which leads to higher operational standards and efficiency. FA vs MA Financial accounting is a process whichis useful in examining thefinancial position of theorganizationtoachievedesiredgoalsandobjectives.Itisverycrucialforexternal shareholders of the organization to determine the financial position and take strategic decision in an efficient and timely manner. Financial accounting has to prepared while complying with various standards such as GAAP, IFRS, etc. It has to be prepared every financial year ending to determine the position of the companyfor a particular accountingyear. Management accounting (MA) helps internal stakeholders of the organization to take appropriate decision.Management accounting helps in providing statistical information which helps in short term decision making. It is not mandatory to prepare management reports and statements. But can be prepared anytime during a particular financial year. Regulatory framework Regulatory framework is the authority given to the regulators which helps in aligning various accounting standards in the accounting practice in order to generate accurate and reliable manner. Their focus is to ensure that the company focuses on maintaining consistency in the 3
approaches during a specific accounting period (Bennett, 2017). It mainly includesGAAP, IFRS, IAS.Financial reporting council (FRC) set standards for motoring, reporting and enforcing accounting standards. Conceptual framework Conceptual framework is a set of rules, regulations and standards which are developed by theIASB(Internationalaccountingstandardboard)tomakesurethattheuniformityis maintained in various accounting methods. It helps in setting concepts for guidance and disclosures. Going concern concept:This is a fundamental framework which statesthat the company should be existing for the foreseeable future period to attain long term organizational goals and objectives. Accrual concept: This principle helps in recording of all the revenues earned when the cash is received by the company in a particular financial year. It helps in determining the expenses and revenues which has not been received and paid. 2. External and Internal stakeholders. Internal stakeholders of the organisation are entities within the organization which mainly includes employees, BOD, managers, owners, etc. they have financial interest in the company and it mainly focuses on vesting intereston working of the organisationto take strategic decision (Yarahmadi and Bohloli, 2015). It is useful for internal stakeholders which helps in downsizing and expansion of the business and take necessary decision to structure the business effectively for attainment of long run goals and objectives. Managers:A manager is person who takes strategic decision to control the functioning of the business concern. Financial accounting information helps managers in taking strategic decision in relation with the operation of the company. It helps manager in assessing the profitability and liquiditystate of organisation. Financial informationhelps mangers in analysing the most profitable units and prioritize the workto attain higher profits and economies of scale.It is also useful in optimally utilizing the resources by controlling the activities and reducing wastage. Employees: employees are internal stakeholdersof the business, and they are interested in thefinancial reports of the organisationin order to determine the overall performance of the 4
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