Detailed introduction of Financial Accounting by SKANS ECampus

Financial accounting is a process of recording, summarizing, and reporting a company's business transactions and proceedings systematically, so nothing slips through the cracks. This reporting is done through financial statements. The four basic financial statements are the income statement, the balance sheet, the cash flow statement, and statements of retained earnings. These statements are legally required for registered companies and allow a company's management to troubleshoot money issues.

It provides a fair and accurate image of the financial affairs of a business to all its stakeholders. Financial accounting viewpoint considers the expenses, revenue, asset, equity, and other aspects of the business.

Pros and cons of financial accounting

The role of Financial Accounting in increasing the profitability and efficiency of a business cannot be denied. Meanwhile, it has some drawbacks also.

Pros of financial accounting

Maintain business record

You must know the role of financial accounting in keeping a record of the transactions of a business organization. Unlike human memory, it can record a large number of transactions. It can orderly maintain a proper book of accounts of all monetary transactions.

Prevention and detection of fraud

Financial accounting is helpful in the avoidance and detection of fraud. Moreover, financial data is recorded fairly, and this data acts as proof and reduces the chances of any frauds and errors.

Present true financial position

To interpret the true financial position of organizations, one needs to consider their financial position. Additionally, all financial accounting viewpoint are recorded and supplied to the internal management team. It helps them in making the right decisions for maintaining the financial health of a company.

Helps in preparing financial statements

In order to know the true profits and loss along with the real worth of organization, the concerned authorities prepare financial statements. Thus, financial accountants cannot work without it.

Comparison of result

FA helps in comparing the performance and production of business organizations. Moreover, it can save financial statements and data for many accounting years. You can utilize the records and saved data to compare revenue and growth of business with previous years.

Acts as legal evidence

In case of any kind of business dispute, the financial accounting viewpoint serves as legal evidence of all data. It systematically records and stores books of accounts of all financial transactions, which can be helpful in case of any confusion and misunderstanding.

Assists the management

Managers rely on FA for making managerial decisions. It provides full information about all cash flows, and it can easily predict any surplus or deficiency of funds.

Cons of financial accounting

Accountants must know about the main limitations of financial accounting. Hence, looking at both sides of the picture is also crucial.

Records only financial aspects

It considers only monetary transactions of organizations. It doesn't consider non-financial aspects, such as market competition, economic conditions, political situations, government rules, and regulations, etc.

Provides insufficient information

Financial accounting doesn't furnish comprehensive information about departments, products, services, or any other factors within the organization. It presents data as a whole. Separate data related to specific activities such as assets, liabilities, profit, and loss, which may be required for decision making.

No cost control method

Financial accounting does not play a role in checking any wastage of materials and misappropriations. Consequently, it does not control the expenses of organizations.

Not Reliable

One can easily manipulate the information presented by FA, such as figures and statements as per his/her desires. They may present misappropriated data for their interest.

Records actual cost

It records the actual cost or historical cost of the acquisition of assets but not the price fluctuations taking place from time to time. The value of assets changes with time, so FA may present inaccurate information.

Conclusion

The importance of FA in business matters cannot be denied. However, you should consider both sides of the picture and take into account its benefits as well as drawbacks. If you want to opt for a career in ACCA, SKANS ECampus can be a reliable choice for you.