notes-shivam

01 Financial accounting - scope and objectives

3 min read

What is Financial Accounting

  1. Financial accounting is a specialized branch of accounting that focuses on the preparation and presentation of financial information for external users, such as investors, creditors, regulators, and the general public.
  2. The primary purpose of financial accounting is to determine company’s financial performance and position of the company
  3. Process of
    1. Recording
    2. Summarizing
    3. Analyzing
    4. Presenting All financial transactions as financial statements

Scope of Financial accounting

1. Record Transactions

  1. Record each and every financial transactions taking place in a business
  2. Maintains a clear and systematic record of all information , in the form of Journal and various subsidiary books

2. Classify and summarize info

  1. The Collected information is categorized according to its nature
  2. Fin. accounting involves classifying and summarizing all the fin. information recorded.

3. Financial statement

  1. Preparation of financial statements like cash flow statement like Cash flow statement, Balance sheet etc.
  2. They show financial position of a business

4. Interpret financial info

  1. Fin. accounting interprets information from the financial statements and analyses conducted.
  2. understands and explains fin info for easy understandings and decision making

5. Communicate all outcomes

  1. communicates all outcomes and information to external shareholders through an accurate picture of fin accounting

6. Determine and maintain financial position

  1. determine actual image of financial position
  2. finance is lifeline of business and its management is imp

1. OBJECTIVES OF FINACIAL ACCOUNTING

1. Maintaining Systematic Records

  • Maintaining Systematic Records of transactions for an organization in the accounting books

2. Recording transactions

  • All transactions are recorded date-wise to be used in the future for further process

3. Ascertaining profit or Loss

  • Ascertaining profit or Loss whether the organization have eared profit or suffered a loss
  • Income statement on trading a profit or loss is prepared for one financial year

4. Ascertaining Financial Position

  • by preparing balance sheets
  • balance sheet contains assets and liabilities that give information about the financial position of the organization

5. Assisting The management

  • provides financial information to management for decision making
  • Information includes the debtors and creditors, profit-loss etc

6. Provide accounting info to interested users

  • users analyze the info per their requirement
  • users can be -
    • internal - management, employees
    • external - creditors, tax authorities, investors

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