What Is Accounting and Finance?
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.
Management Accounting
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.
Accounting
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:
1. Investors
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.
2. Employees
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.
3. Lenders
To secure their amount, the lenders are interested in whether their principal and loan amount will be refunded or not.
4. Government
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
Conclusion
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.
FAQs on Accounting and Finance: The Backbone of a Company
1. What are the objectives of financial accounting?
The objectives of accounting are here as under:
Recording of transactions chronologically, i.e. Journal, Ledger and then transferring the amount into trial balance.
Ascertaining the results in the financial statements through manufacturing account in case of manufacturing concern and in case of trading concern trading and profit and loss account.
Ascertaining the financial position on the specified date through the balance sheet.
Distributing the information produced among the various users of the financial statements.
To know the solvency position of the enterprise.
2. What are the various areas of service for accountants?
The major areas of service of accountants are here as under:
The accountants can maintain books of accounts of the enterprises.
They can serve as statutory as well as internal auditors in the company.
Accounts have good knowledge of taxation, so they can serve their clients as tax consultants.
Accountants also serve as financial advisers for business expansion and help businesses in responding to legal notices issued by various government agencies.
3. What is the role of finance executives?
The finance executives serve as the good financial planner, and they analyse the financial statements in the best and most effective way possible. To allocate funds and develop the best capital structure, they make the best investment plans. They also practise risk management and management of financial resources. In today's world, the finance executive also participates in overseas HR and IT functions and also deals in areas of outsourcing the work of clients. They also act as a strategic planner and also act as regulatory compliance.