(1) The definition of financial accounting (2) Trends of financial accounting and business management (3) Thesis statement
2. Principles and standards of financial accounting (1) Consists of financial accounting (2) Principles of financial accounting (2) Standards of financial accounting
3. Financial accounting perform useful information to make decision (1) Introduction of users in financial accounting
(2) Roles in business management (3) Importance of financial accounting for managers
4. Financial accounting assists business in analysing past events and in planning future events (1) Assistance business in analysing past events (2) Assistance business in planning future events
5. Benefits of financial accounting for business management
Accounting is often called the “language of business”. Accounting is part of the total information system within a business and one of main strands is financial accounting. Financial Accounting plays an important role in our economic and social system. Financial accounting is the way in which a business, company or other economic entity measures and record transactions in a regular period (Warren & Fess 1988).These periodic reports will accord different requirements to use for different users. The current economic environment has had a significant impact on financial accounting due to the globalization and the financial crisis. For example, Greece has faced a debt in crisis and major companies such as Lehman Brothers Investment Company have become bankrupt recently. It is argued that financial accounting system has safe issues which are principles and standards of it. At the same time, financial accounting reports or statements are becoming more and more complex than before. Nonetheless, many problems and situations still cannot be avoided. This paper will argue that financial accounting is vital to business managers as it allows for effective analysis of past performance and so the ability to make sound decisions about future polices and directions. The purpose of this essay is to firstly explain the meaning of financial accounting and its role in assisting all stakeholders with accurate decision making. Specifically it will analyse how business managers can use accounting records from the past tomak strong management decisions for the future.
Financial accounting is made up of four parts, these being the balance sheet; the income sheet; the statement of cash flows; and the notes that provide essential details (Porter & Norton 2007). The balance sheet shows a summary of a company’s assets and liabilities and communicates information about the financial position of an entity at a particular point in time. The income statement describes the income and the expenses in a period of time, while the statement of cash flows shows cash resources and how much cash can be used. Finally, the notes provide essential descriptions giving the company’s accounting policies and other crucial information (Porter& Norton 2007).
All business activities will involve accounting, especially financial accounting. Financial accounting itself is a complex activity and accountants need to be guided in their work by relevant principles. Hence, the principles of financial accounting are fundamental in the business process.
There are six accounting principles that are generally accepted. As Collis and Hussey (2007) describe, these six principles that underpin financial accounting are: the materiality concept; money measurement concept; historical cost concept; consistency concept; prudence concept and the business entity concept.
The concept of materiality is the principle which states only accounting information that crucial materials are included in the financial statement. The concept of money measurement is the principle that only items that provide