The Need and Importance of Financial Accounting
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Accounting is defined as the process of recording, classifying, and summarizing financial transactions and events to produce useful information for decision making. It involves identifying and measuring financial data, and communicating that information through financial reports like income statements and balance sheets. These reports provide information on a company's profits, losses, assets, and liabilities to stakeholders like owners, investors, employees and customers. Accounting is essential for businesses as it aids management in planning, controlling costs, and making informed financial decisions.
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The Need and Importance of Financial Accounting
- 2. “Accounting is the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of financial character and interpreting the results thereof.”
- 3. According to American accounting association, accounting has been defined as, “The process of identifying, measuring, and communicating information to permit judgment and decision by the users.”
- 4. Financial Accounting is the very need of a business to provide the information which is useful for sound economic decision making process and owing to the diversification between ownership and management.
- 5. Being known as “The Language of business”, accounting is the basic need of a business organization to find out where it stands and how it performs.
- 6. Accounting coach defines Financial accounting is a specialized branch of accounting that keeps track of a company's financial transactions. Using standardized guidelines, the transactions are recorded, summarized, and presented in a financial report or financial statement such as an income statement or a balance sheet.
- 7. It helps to ascertain the net results in terms of profit or loss (Income Statement) providing the information about financial position of the business (Balance Sheet) to the owners of a business relating to what the entity owns in the form of assets and what it owes in the form of liabilities at a particular point of time.
- 8. Accounting information is valuable tool to the concerned managers to ensure whether or not the business entity is being directed in a way as wanted, While it’s a means to provide the information to the investors to find out the future prospects of business. It is also useful for the employees and customers in order to know the condition of the business entity.
- 9. Accounting is of a great assistance to management for planning, controlling and decision making process. It is with the help of accounting information that the performance of an entity can be appraised, at the same , its methodical records make possible to eliminate the frauds and the thefts.
- 10. Accounting is a must for every business. Exclusive of accounting leads to create chaos and discrepancies in business transactions.
- 11. Companies rely on the financial reports being prepared by their accountants to be true and accurate that in turn can lead a business management to make sound business decisions.
- 12. For further reading, please refer to the following article.