Petrushenko Anna
National University of Food Technologies
The
role of accounting in a business has a simple purpose -- to detail the
company's financial situation accurately at any given time. When a business
encounters accounting problems, financial records are likely inaccurate and the
company's financial health may be at risk. Taking the time to accurately keep
track of a company's finances can help prevent audits and missed business
opportunities.
Financial
accountancy is used to prepare accounting information for people outside the
organization or not involved in the day-to-day running of the company.
Management accounting provides accounting information to help managers make
decisions to manage the business.
Financial
capital maintenance can be measured in either nominal monetary units or units
of constant purchasing power.
The
purpose of accounting is to provide the information that is needed for sound
economic decision making. According to the Law of Ukraine "On Accounting
and Financial Reporting in Ukraine" the main purpose of financial
accounting is to prepare financial reports that provide information about a
firm's performance to external parties such as investors, creditors, and tax
authorities. Managerial accounting contrasts with financial accounting in that
managerial accounting is for internal decision making and does not have to
follow any rules issued by standard-setting bodies. Financial accounting, on
the other hand, is performed according to Generally Accepted Accounting
Principles (GAAP) guidelines.
In
order that financial statements report financial performance fairly and
consistently, they are prepared according to widely accepted accounting
standards. These standards are referred to as Generally Accepted Accounting
Principles, or simply GAAP. Generally Accepted Accounting Principles are those
that have "substantial authoritative support".
Financial
accounting serves the following purposes:
·
producing general purpose financial statements
·
producing information used by the management of a business entity for
decision making, planning and performance evaluation
·
producing financial statements for meeting regulatory requirements.
Objectives
of Financial Accounting
·
To know the results of the business
·
To ascertain the financial position of the business
·
To ensure control over the assets
·
To facilitate proper management of cash
·
To provide requisite information
There are times when a business may need to use
different accounting methods. For example, a company may keep books to monitor
cash on hand and other books to monitor cash accrual, which include pending
bills and payments. As long as a company is able to keep different bookkeeping
methods separate and accounting details well documented, it should not
experience any problems as a result. However, when a company inadvertently
combines the two bookkeeping methods without taking into account the
differences in records keeping, its financial records will ultimately be
unreliable.
When recording income and expenses, a company still
needs to take into consideration its working capital and cash flow. When a
company creates an income statement, it must take into account money it will
not receive or pending payments. A company may not receive money because of
discounts offered for products or services, or for refunds issued to a
customer. While a company may have made a sale, it cannot count the amount of
money promised in the transaction as cash-on-hand until it receives the actual
payment. Failure to take into account cash flow can cause a company to owe
money instead of gain capital when it does not have enough income to cover its
expenses.
The finance department often
faces problems while dealing with outside agencies such as government
departments, including tax departments etc., while seeking for sanctions or
permissions etc. There is always a need for professional and dynamic
accountants who can handle this shortcoming with intelligence.
A problem commonly found in accounting, which can lead
to financial problems, is bad bookkeeping. When an individual does not keep
up-to-date financial information about a company, commits bookkeeping errors or
fails to report the relevant information necessary, a company can have a
significant financial loss and not know as much. Such a practice can also lead
to tax audits and fines for the improper reporting of funds.
The failure to create a budget can cause a company to
overspend and go into debt. Budgets can help a company create a financial
forecast and allocate funds appropriately. The creation of a budget can help
prevent financial problems or identify weak spots in cash flow. Moreover, the
failure to budget funds and forecast a company's financial health can lead to
the improper planning of production, the hiring of too many or too few
employees and the poor use of available resources.
Purposefully manipulating financial records for
personal gain can result into one of the most detrimental accounting and
financial problems a company could experience. Fraud occurs when an individual
or group reports a company did not earn as much money as it actually did, and
keeps the difference for themselves. Other methods of fraud can include falsely
reporting profits and company growth to skew the perception of the company's
financial well-being, actions that could result in criminal charges.
There can also be human errors such as typographical
mistakes. Such mistakes might
lead to problems in the final tallying of the balance sheets.
There
can also be issues in accounting if the transactions are not update on a daily
basis. The accountant may forget to make entries of data of previous dates. This can lead to a faulty
balance sheet.
Literature
1.
Financial
Accounting: An Introduction to Concepts, Methods, and Uses by Clyde P.
Stickney, Roman L. Weil, Hardcover: 992 pages, Publisher: South-Western College
2.
Financial
Accounting : Tools for Business Decision Making by Paul D. Kimmel, Jerry J.
Weygandt, Donald E. Kieso, Hardcover: 832 pages, Publisher: Wiley
3.
Corporate
Financial Accounting (Corporate Financial Accounting) by Carl S. Warren, James
M. Reeve, Philip E. Fess, Paperback: 800 pages, Publisher: South-Western
College