With rapid growth and development in the market, the economic environment remains uncertain. In such a situation, an organization is likely to face complex and rapidly changing environment which require accounting guidance that can help in business decision making. To get going in the market, there is a need to keep a check on the costs and cash flow. This can be done by the process of recording and summarizing the transactions so as to achieve a clear picture of the company’s financial position and performance. Financial Accounting is important for an organization, be it small or large.

What is the function of financial accounting?
Financial accounting is mainly used for recording of transactions. Financial accounting helps in making the right financial decisions. It assists in calculating the productivity and profitability of an organization. It is mainly concerned with the reporting of financial information to the owners of a business organization. It also includes the preparation of periodic external reporting of financial information for the shareholders. It provides similar information to Government and third parties like potential investors, employees, customers, suppliers and lenders.

Financial accounting is concerned with the preparation of three main financial statements:

  • Balance sheet
  • Income statement
  • Statement of cash flow

Why is financial accounting important?

  • Financial accounting ensures that the financial statements are included in reports and accounts so that it is easy to analyze and interpret the performance of the company.
  • It helps in maintaining the score card of the company. It classifies and records the monetary transactions of an entity according to the established concepts, principles and accounting standards.

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