The role of Financial Accounting
"Accounting is an information system that included recording, classifying, presenting and analyzing of financial information."(Andy and Patrick 2003) Business firms need to prepare and publish various types of financial statements regularly. There are closely linkage between business activities and the decision marker. In business society, because of the scarce resources, the decision marker needs to make the reasoned choices through communicating with the financial information. Therefore, financial accounting is an important step in business for decision makers to operate a business. In this essay, it explains the major objectives and roles of financial accounting and relevant information. Also, it analyses the users of financial reporting and the importance of the financial reporting in the financial market. It also includes the role of financial accounting to assist in efficient resources allocation.
The major objective of the financial accounting is to provide information about the financial position and performance that is useful for a business user to make economic decisions and identify the major problem through the financial statements in the company. In more details, financial accounting attributes three functions for decision makers which are planning, controlling and evaluating.
In planning, decision makers can make use of the financial information in the planning process. For example, when the production manager introduces a new product in the same line, the manager needs to evaluate the actual cost data for similar products in the past and decide whether the product should be introduced.
In controlling, managers compare the actual performance with the pre-set standards through analyze the financial information of the company. Further actions should be taken if the performance cannot meet the pre-set standards.
In evaluating, financial information is provided for external users to make...
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