The Importance Of Financial Accounting In Today's Business Environment
Numbers play a big role in any business, and a company's finances play a key role in impacting its success and stability. This is why financial reporting and tracking play a key role in running a business successfully, which in turn opens up doors to lucrative career options in this field.
If you are interested in numbers, finance, and accounting principles and want to make a career in this sector, it is crucial to understand the importance of financial accounting and its role in the world of business.
Keep reading to learn about financial reporting or accounting and why it is so important in running a business successfully.
What is Financial Accounting?
Financial accounting is the branch of accounting that involves recording, organising, communicating, and reporting a business’s financial information or transactions over a period of time.
These financial transactions are collected, calculated, and summarised in a document called a financial statement, which plays a key role in finance reporting and accounting. A financial statement includes a balance sheet, cash flow statement, and income statement. All this information records a company's operating performance over a specific period.
Generally, accountants produce the financial statement at the end of each quarter or a business period or year, depending on the company/ business. According to accounting principles, the three main components of the financial statement describe:
- Balance Sheet: Provides overall information regarding the financial status of the company.
- Cash Flow Statement: Provides information on how much money the company has earned during the specified period.
- Income Statement: Describes the company’s profits and losses throughout the specified period.
Key Functions of financial accounting include:
- Furnishing official finance reports at the end of each quarter
- Recording, organising, and documenting a company's financial activity and transactions
- Providing financial records and status of the company to relevant parties
Importance of Financial Accounting in a Business
Finance accounting plays a crucial role in running a business. It helps record and track income and expenditures, ensure statutory compliance, and provide quantitative financial information to investors, the government, and management. This information can be very important in making business decisions.
The major reasons explaining the importance of financial accounting in a business are:
- Ensures Compliance and Transparency: Proper accounting systems and processes ensure that a business complies with various legal and regulatory requirements concerning financial reporting. Proper financial reporting and accounting also ensure transparency and statutory compliance. They also ensure that liabilities such as sales tax, VAT, income tax, and pension funds are taken care of appropriately.
- Financial Records Help in Evaluating Business Performance: Financial records reflect a business or company's financial position. Financial accounting helps companies calculate financial ratios based on the data available. This allows them to compare their financial performance with industry benchmarks or competitors while also assessing other critical aspects of the company, such as liquidity, profitability, solvency, etc.
- Assists in Future Projections and Creating Budget: Future projections and budgeting are crucial and can easily make or break a business. Business projections and trends are based on historical financial data to keep your operations profitable. The accuracy of these records can be assured only through a well-structured accounting process.
- Recording Transactions: Financial accounting plays a major role in keeping detailed records of a business's transactions. The part of financial accounting that records transactions is also called bookkeeping, and it assists companies in keeping track of their expenses and staying organised. These records play a crucial role when audits are conducted or when evaluating a business’s spending and budgeting.
Professional Designations for Finance Accounting
After completing a financial accounting course, you can choose the following professional designations:
- Chartered Accountant (CA)
- Certified Public Accountant (CPA)
- Certified Internal Auditor (CIA)
- Certified Management Accountant (CMA)
Conclusion
Financial accounting is key to updating a business’s economic health. If you are someone who aspires to work and build a career in the field of finance accounting, then Imarticus Learning can help you achieve your dreams.
The Postgraduate Financial Accounting and Management Program by Imarticus Learning will help you make data-driven decisions that will drive growth, expansion, and ultimately, business success.
