Explain the major role and objectives of financial accounting.

Authors Avatar by nadiahsw (student)

The world of financial accounting

Company nowadays is divided into a number of departments such as human resource management division, accounting division. Each department specializes in different work task in order to facilitate normal operations fluently. For everyday operation, the enterprise generates revenue as well as expense. Thus, it is the accountant’s responsibility for handling the company’s financial data so as to generate financial information about the business performance and its economic position. Also, the main objective of an enterprise is to maximize profit and minimize the cost. For this purpose, it is of paramount importance for the company to have accounting division. In the following essay, the present writer will explain the major role and objectives of financial accounting and other aspects related to financial accounting in detail.

First of all, basically, the role of financial accounting is to gather and summarize financial information so as to generate financial reports and statements such as income statement, retained earnings statement, financial position for the users outside the company (external users), for instance, the government, investors, employees, analysts, suppliers, lenders, customers and the public on a periodic basis. Moreover, the major objectives of financial accounting is to provide essential financial information, to facilitate an appropriate cash management, to have a solid control over assets, to ensure the business’s economic position and to have a crystal clear picture about the result of an enterprise.

As mentioned above, the major role of financial accounting is to collect and record financial information in order to provide financial statements and reports for the users. The information collected has to be relevant because the information provided supposed to be useful and influential to the users. Information relevance is therefore important in accounting since it can help the users predict the future trends of the enterprise or help confirm and collect any past predications. Therefore, this helps assist the financial statement readers to make best decisions about investment which can influence the well-being of the enterprise. For example, the engineering manager of an industrial company is thinking of setting up a newly high-capacity machine for the purpose of raising productivity. However, if there is a new sales forecast or reports showing a decline in sale, this information is thus relevant to the manger’s decision making because it may not be necessary for the company to install such a high-capacity machine. Therefore, Information relevance can influence the users in order to make the best decision for the company.

Join now!

Furthermore, financial reporting is responsible for providing financial information to the external users. As a matter of fact, unlike the internal users, the external users have rather limited authority, resources to acquire information. Therefore, the external users have to rely on the financial statements generated by financial reporting as their primary source of financial information about the company’s business performance and economic activities. The external users include lenders, suppliers, customers, investors such as existing and potential shareholders, analysts such as financial analysts, financial journalists, economists, statisticians, researchers and trade union, employees such as existing, potential and past employees, creditors ...

This is a preview of the whole essay