Accounting consists of a series of chronological steps performed by the accountant or the person keeping the knowledge of such aspects, and the steps are recording, classifying, summarising, analysing, interpreting, and communicating with the person concerned.
In order to fund an enterprise, there is a need for finance. So, finance is termed as raising funds from various sources available to determine the formulation of the best capital structure to maximise the wealth of the shareholders.
What Is Financial Accounting?
Financial accounting is the process of preparing, summarising and interpreting accounting records. After analysing the accounting, the information analyser communicates such information to the users and stakeholders of the financial statements. Records are mostly framed on the accrual basis of accounting unless otherwise stated. In order to determine the profitability of a business as the net result of the accounting period, the profit and loss account is prepared at the end of the year. For the evaluation of assets and liability on the given date, the position statement, called a balance sheet, is prepared at the specified date. The accounting period usually begins on 1st April and ends on 31st March.
Taking into consideration the provisions of the Companies Act 2013, the balance sheet and profit and loss account have their different formats as specified in Schedule III of the Companies Act 2013, and the companies governed by the special acts have their formats as specified under their acts covered. For example, the format of banking companies, financial statements are given under the Banking Regulations Act 1949.
Difference between Accounts and Finance
Users of the Accounting Information
Financial statements are prepared for the users in order to generate value for them. The analysis part of financial statements is used by various users to cater for their different requirements, and hence the users are listed below:
In order to ensure that their money is properly managed and not being misused, the investors are interested in the information on the financial statements.
The growth of employees is directly related to the growth of the company, and hence the employees are also concerned about the true and fair view of financial statements.
To secure their amount, the lenders are interested in whether their principal and loan amount will be refunded or not.
The companies are the major sources of revenue for the treasury of the government. So, to regulate the formulated taxation policy in India, the government is interested in the financial statements.
Stakeholders Analysing Results
Accountants are trusted as the most trusted persons by the people to know and analyse financial information. Accounting requires knowledge of the various other disciplines such as law, economics, taxation and many more. Hence, accountants serve as 360-degree viewers of the economy. Financial statements must be accurate in order to arrive at the correct profits so that the best decisions can be taken by the stakeholders and capital structure must be in such a manner that it reduces the cost of capital.