Financial accounting is an important part of every business, corporation, and other organizations that operate with various sums of money. This system helps people count their profits, calculate their regular expenses, and operate their financial means properly. The following paper will explain what financial accounting is and what role does it play in a corporate environment.
Discussion
Financial accounting is a number of certain operations in any business or profitable organization that are intended to summarize, analyze, and report every transaction that is somehow related to the company’s activity. People who work in this sphere are usually responsible for making quarterly and annual reports that should reflect all the expenses and earnings of the business for a set period. Sometimes, accountants are expected to prepare financial statements that will be published on sources open to consumers or other people interested in this information (Bushman, 2014). Usually, this data is beneficial for stakeholders, workers, government services, financial institutions, and businessmen to help them make correct decisions as to their investments or collaboration with a particular company.
Financial accounting departments’ employees must follow professional standards established by both transnational and local organs related to the given industry. Nevertheless, the rules set by GAAP (Generally Accepted Accounting Principle) always have to be regarded by people who work with financial operations and reports. This doctrine includes all the ethical, professional, and organizational rules accountants must refer to when they summarize and prepare different financial statements.
There is another set of accounting rules called IFRS (International Financial Reporting Standards). Information presented in this source is used by professors of all Universities in the world and qualified specialists to identify how various types of transactions have to be reported not to confuse individuals who will have to deal with the given records in the future (Narayanaswamy, 2017). As IFRS develops and becomes more accurate every year, transnational corporations use its standards more often recently.
When professional accountants work on their reports, they must remember every factor presented below:
- Relevance. All the provided data must be accurate as it has to help people make their decisions based on the statistics they obtain from financial departments of different firms.
- Materiality. Every mistake made in a report might lead to other individuals’ material loses. Therefore, every recorded number or a sum of money has to be checked several times before publishing.
- Reliability. Only people who are trusted and have enough experience can be allowed to operate such financial operations as making reports as their competence can influence several consequential mistakes (Wang, 2014).
- Lucidity. Every person who reads financial reports has to understand all the presented information clearly and without any difficulties. This requirement can be accomplished only by a skilled professional.
- Comparability. As financial reports are updated once a set period, they have to be comparable because other employees need this factor to define and calculate certain tendencies in their company’s profits and expenses.
Corporate Environment
The number of small business has been increasing rapidly all over the world within the past two to three decades. Therefore, the profession of financial accountants is now valued and appreciated more than it was in the previous century. It appears that accounting is a crucial element of every business, regardless of its size, profits, and other similar factors. Profitable organizations cannot exist without making and summarizing their financial reports.
The significance of accounting in any corporate environment is tremendous because it lets managers see all the transactions their companies made for a specified period. This statistic is helpful as it demonstrates all the results that were achieved according to a certain plan or without it. The organization of the cash flow must be managed correctly to allocate all the earned money properly and to maintain the business profitable (Pratt & Peters, 2017). There are many examples in the history when people forgot about making financial reports after establishing their businesses. This mistake influenced specific difficulties in these companies that led to their bankruptcy.
It would be proper to mention that all the earnings have to be recorded correctly as minor mistakes in financial statements might lead to various unintended law violations. All these reports have to be provided to the State Tax Inspectorate in time (Warren & Jones, 2018). Otherwise, the business owner might have to pay additional fees for not following the requirements of his or her professional activity.
It is necessary to state that financial accounting is also used in a corporate environment to assess the amount of financial means that can be invested in the development of a certain organization and the sum that has to be kept to cover all the utilities, supplying services, and other monthly expenses. In general, accounting is a central activity of any organization that deals with money (Henderson, Peirson, Herbohn, Artiach, & Howieson, 2017). Every profit loss can be determined with the help of monthly reports as well.
Conclusion
Financial accounting is a process of reports that display all the expenses and earnings of a particular firm. This factor is essential for every profitable organization because it controls all the cash flows in a corporate environment. This work has to be completed accurately and only by skilled professionals that can calculate every figure appropriately and without any mistakes.
References
Bushman, R. M. (2014). Thoughts on financial accounting and the banking industry. Journal of Accounting and Economics, 58(2-3), 384-395. Web.
Henderson, S., Peirson, G., Herbohn, K., Artiach, T., & Howieson, B. (2017). Issues in financial accounting. Melbourne, AU: Pearson Australia.
Narayanaswamy, R. (2017). Financial accounting: A managerial perspective (6th ed.). Delhi, ND: PHI Learning Private Limited.
Pratt, J., & Peters, M. (2017). Financial accounting in an economic context. Hoboken, NJ: John Wiley & Sons, Inc.
Wang, C. (2014). Accounting standards harmonization and financial statement comparability: Evidence from transnational information transfer. Journal of Accounting Research, 52(4), 955-992. Web.
Warren, C., & Jones, J. (2018). Corporate financial accounting. Saint Louis, MO: Cengage Learning.