Role and Importance of Accounting in Business Organization and Financial Statements

This report discusses the role and importance of accounting in the business organization and different types of financial statements such as balance sheet, income or profit & loss statement and cash flow statement. It also highlights the viability of financial statements and their significance in analysing the operations of the business.

Assessment 1 Report 1
Case Scenario Brief
and questions

Table of Contents
INTRODUCTION................................................................................................................................3
MAIN BODY ......................................................................................................................................3
CONCLUSION ...................................................................................................................................4
REFERENCES ....................................................................................................................................5

INTRODUCTION
Financial statements are very important in order to help a business understand its financial
capabilities and it also helps in analysing the operations of the business. This report will discuss the
role and importance of accounting in the business organisation and different types of financial
statements such as balance sheet, income or profit & loss statement and cash flow statement which
is maintained by the company to highlight the viability of financial statements (Yohn, 2020).
MAIN BODY
Accounting is the process which is related to the storing of financial transaction or computing
and summation of business functions and simplifying the financial information, and discussing the
results to the management and other partners to help them in making better business decisions.
Accounting is classified into two main parts that is management accounting and financial
accounting (Madalieva, 2019). Balance sheet is the financial overview of the various operations of
the company and it allows firms to get a thorough estimate of the entire debit and credit sequences
that happen in their accounts. It is used in various ways for analysing the financial status of the
company, like for the assessment and comparison of debt and equity in the firm, etc. and
specifically maintained in case when company is accepting the double entry accounting system.
One of the major reasons as to why use of such financial statements can help the firm such as
balance sheet is that it includes both assets and liabilities of the business which allows for a
comprehensive financial analysis to take place (Lakhtionova, and et.al., 2021).
Profit and loss statement of the company is used to show the records related to the revenue
and expenditures of the company at the end of the year for checking the financial health of the
company with major emphasis on how much profit the company is earning and amount of expenses
in the company. The reason behind maintaining this statement every year is that it helps in
comparing and finding out the changes in the profits generation of the company from the current
year to the last year.
Cash flow statement is also a very important financial statement which includes the inflow
and outflow of the cash from different sources such as operating activities, financing activities and
investing activities. Maintenance of this statement is very important as it allows the comparison of
the cash inflows that a business receives from its operations versus the cost of investment it endures
from the outflows. Management accounting is the part of accounting which is already mentioned
above and used by the internal management team of the company for taking the useful decision by
considering statements, documents or reports of the financial status of the company. Cash

accounting is related to the recording of payment receipts at the time when they are received and
expenditure.
CONCLUSION
By this report it is concluded that, for a business it is necessary to keep the records of financial
transaction because it helpful to check the financial situation of the business. Through the use of
financial statements, outsiders such as investors get ready to invest in the business. Along with this,
balance sheets and profit and loss statement is taken as a direction which is used to discover any
changes in the financial condition of the business in the given period of time.

REFERENCES
Books and journals
Yohn, T.L., 2020. Research on the use of financial statement information for forecasting
profitability. Accounting & Finance, 60(3), pp.3163-3181.
Ahmed, A.S. and Safdar, I., 2018. Dissecting stock price momentum using financial statement
analysis. Accounting & Finance, 58, pp.3-43.
Madalieva, D.B., 2019. LEARNING ASPECTS OF ORIGINATING THE TERMS OF
ACCOUNTING IN THE LINGUISTIC RESEARCH. Экономика и социум, (11), pp.58-
61.
Molaee, R., 2022. The effect of accounting information quality on cash retention with emphasis on
inflation. Journal of Accounting and Management Vision, 5(61), pp.103-114.
Lakhtionova, L., and et.al., 2021, June. Modeling of Forecasting Financial Statement. In
International Conference on Comprehensible Science (pp. 144-157). Springer, Cham.