v The
accounting function typically generates the following three financial
statements on a consistent basis
·
Balance Sheet
The balance sheet is a
financial statement that reports a company's assets, liabilities, and equity at
a specific point in time. It provides a snapshot of a company's financial
position and is often described as a "statement of financial
position."
·
Income Statement
The income statement, also known as the profit
and loss statement, reports a company's revenue and expenses over a specific
period of time. It shows the company's profitability during the period and is
often described as a "statement of operations."
·
Cash Flow Statement
The cash flow statement reports the inflows
and outflows of cash and cash equivalents for a specific period of time. It
shows how changes in balance sheet accounts and income affect a company's cash
and cash equivalents and is often described as a "statement of cash
flows."
Financial accounting is
most useful for decision-making in three areas:
1. Investment
decisions
Financial accounting information is crucial
for making investment decisions. Investors need to assess the financial health
of the company to determine whether it is worth investing in or not. According
to Horngren et al. (2021), "Investors rely on financial accounting
information to make informed decisions about whether to buy, hold, or sell
shares of stock" (p. 6).
2. Credit
decisions
Financial accounting
information also helps creditors make informed credit decisions. Creditors
assess the financial position of the company to determine whether it is capable
of repaying the loan. According to Warren et al. (2019), "Creditors use
financial accounting information to assess the creditworthiness of a business
and to decide whether or not to lend money to the business" (p. 10).
3.Performance evaluation
Financial accounting information is used to
evaluate the performance of the company. Managers need to know how the company
is performing to make informed decisions about future operations. According to
Wild et al. (2020), "Financial accounting information is used to evaluate
the performance of a company over a period of time and to make informed
decisions about future operations" (p. 17).
Financial accounting
provides users with relevant financial information, such as income, expenses,
assets, liabilities, and equity, which helps them make informed decisions about
a company's financial performance, position, and cash flow. This information
can be used by investors to decide whether to buy, hold or sell a company's shares,
creditors to determine creditworthiness, and management to make strategic
decisions. Additionally, financial accounting enables regulatory bodies to
ensure compliance with accounting standards and regulations, protecting
investors and stakeholders.
Taxation functions play a crucial role in helping
users make informed decisions. By providing a clear understanding of how taxes
work, users can make informed decisions about their finances, investments, and
business operations. For example, knowing the tax implications of different
investment options can help users choose the best investment strategy to
minimize their tax liabilities. Additionally, understanding the tax code can
help businesses make decisions about their operations, such as whether to
invest in new equipment or hire additional employees. Overall, taxation
functions provide valuable information that can help users navigate the complex
world of taxes and make more informed decisions. (Investopedia , 2021)
The main difference between
management accounting and financial accounting.
(Graduatetutor.com, 2019)
·
Auditing
v Auditing
is a systematic process of examining and verifying financial and operational
records, procedures, and systems of an organization. The primary objective of
auditing is to ensure the accuracy, completeness, and reliability of financial
statements and other relevant information that the organization provides to its
stakeholders.
Auditors
are responsible for reviewing and evaluating the organization's financial
statements, internal controls, and compliance with laws and regulations. They
use various auditing techniques and procedures to collect and analyze financial
and non-financial data, identify potential risks and weaknesses in the
organization's processes, and make recommendations to improve the efficiency
and effectiveness of operations. The two main
specializations for auditors are internal auditing and external auditing.
Internal
auditing
Internal
auditing is the process of assessing an organization's internal controls, risk
management processes, and governance procedures to ensure that they are
effective and efficient. Internal auditors work within an organization and are
responsible for identifying areas where improvements can be made to ensure
compliance with regulations and best practices. They also provide
recommendations on how to improve processes and reduce the risk of fraud or
other types of financial mismanagement.
External
auditing
External
auditing, on the other hand, is the process of reviewing an organization's
financial statements and records to provide an independent opinion on their
accuracy and completeness. External auditors work for independent audit firms
and are engaged by clients to provide an objective assessment of their
financial statements. Their primary objective is to express an opinion on
whether the financial statements are free from material misstatement in
accordance with accounting standards.
Both
internal and external auditors play important roles in ensuring that
organizations are compliant with regulations, operating effectively and
efficiently, and providing accurate and reliable financial information.
·
Cost accounting
Cost accounting is a
branch of accounting that focuses on analyzing, recording, and tracking the
costs associated with producing goods or services. It involves identifying and
classifying expenses, determining the cost of production, and providing
information to management for decision-making purposes.
·
Forensic accounting
Forensic accounting is a
specialized field that combines accounting, auditing, and investigative skills
to investigate financial fraud and white-collar crime. Forensic accountants
analyze financial data, identify discrepancies, and present evidence in a manner
that is admissible in court. They also provide expert testimony in legal
proceedings.
·
Fund accounting
Fund accounting is an
accounting system used by non-profit organizations, government agencies, and
other entities to track and manage financial transactions related to specific
funds or grants. Each fund is treated as a separate accounting entity, allowing
for better transparency and accountability of funds.
·
Project accounting
Project accounting is the
process of tracking and managing the financial performance of individual
projects within an organization. It involves recording project expenses and
revenues, allocating costs to specific projects, and generating financial
reports to evaluate project profitability and inform decision-making.
·
Fiduciary accounting
Fiduciary accounting is a
specialized form of accounting that deals with the management of assets held in
trust by a trustee for the benefit of a beneficiary. It involves tracking the
financial transactions, investments, and distributions of the trust assets, as
well as ensuring compliance with legal and ethical responsibilities.
·
Political campaign accounting
Political campaign
accounting refers to the process of managing and reporting financial
transactions related to political campaigns. It involves keeping accurate
records of donations, expenditures, and other financial activities to ensure
compliance with campaign finance laws and regulations. Effective campaign
accounting is essential for maintaining transparency and accountability in
political fundraising and spending.
·
Government accounting
Government accounting
refers to the process of recording, analyzing, and reporting financial
transactions and activities in the public sector. It involves the use of
specialized accounting standards, rules, and procedures to ensure
accountability, transparency, and efficiency in the management of public funds
and resources.
·
International accounting
International accounting
refers to the set of accounting principles, practices, and standards that are
applied to financial reporting in a global context. It involves the preparation
and presentation of financial information in accordance with international
accounting standards, as well as the analysis and interpretation of financial
statements from a global perspective. International accounting is essential for
multinational corporations, investors, and regulators to understand and compare
financial information across different countries and regions.
v The
treasury function within an organization typically involves managing the
company's financial assets and liabilities, as well as its liquidity and
financial risk. The main objective of the treasury function is to ensure that
the company has sufficient funds available to meet its financial obligations
and to maximize the returns on its investments.
v The
treasury function can provide stakeholders with valuable information and
insights that can help them make better decisions.
1.
Investment decisions
The treasury function can provide information
about the company's investment portfolio, including its returns and risks. This
can help stakeholders make informed decisions about where to invest their
money.
2.
Risk management
The treasury function can
help stakeholders understand the financial risks that the company is exposed
to, and provide information about how these risks are being managed. This can
help stakeholders make decisions about how to mitigate or avoid these risks.
3.
Capital structure decisions
The treasury function can provide information
about the company's capital structure, including its debt and equity levels.
This can help stakeholders make decisions about how to fund the company's
operations and growth.
4.
Financial forecasting
The treasury function can
provide financial forecasts and projections, which can help stakeholders
understand the company's expected financial performance in the future. This can
help stakeholders make decisions about investments, resource allocation, and
other important matters.
The treasury debt is
responsible for the timely availability of those funds when needed for the
support of the business. (Ethan Hathaway, n.d) All the accounting function are
recorded in financial statement.so by analyzing the financial statement in SMEs
mainly 3 regular bases as mentioned above, the stakeholders can make decision.
(ResearchGate,
n.d.)
