What is Financial Accounting?
Financial Accounting is a system whereby an entity’s financial information is gathered, accumulated, analyzed and presented in standard formats.
Every economic entity normally has a goal of value maximization for its stakeholders. Towards this, Financial Accounting reports provide benchmarks for assessing the role and efficiency of the management and Board of Directors of a firm. These reports are generally published regularly and provide all the relevant information in a reliable and timely manner. The Annual Statements of companies, released during what is commonly known as the “results season”, often provide a guide to the future course and direction of equity markets.
The users of Financial Accounting reports are, generally speaking, the following:
• Employees – Employees are usually interested in the financial performance and profitability of their firms, with a view to deciding whether staying or leaving the firm would be in their best interests.
• Lenders – Lenders would typically be interested in knowing the financial solvency of the firm and whether the repayment of loans disbursed by them to the firm will be honored.
• Investors and Financial Analysts – Investors study the Financial Statements of firms to decide whether to buy/ sell/hold their shares. Using these reports as their base, equity research analysts put forth their analyses on the firm’s earnings expectations and price targets, thereby guiding the sentiment on individual scrips as well as the overall market.
• Suppliers and other trade creditors – These economic entities would study financial statements of firms in order to determine whether the amounts owed to them will be disbursed when expected, and the potential future course of demand for their supplies by the firm.
There are three types of financial statements, as given below:
1) Cash Flow Statement:
The Cash Flow Statement deals with the inflow and outflow of cash and cash equivalents from the business. This statement breaks down this analysis into operating activities, investing activities and financing activities. The most important use of this statement is that it is a barometer of the short-term viability of a company, especially its ability to pay bills.
2) Profit and Loss Statement (Income Statement):
The Income Statement shows the revenues and expenses of the firm during a particular period, i.e. it reflects whether the firm made or lost money over the given period. This statement essentially shows how the “top line” (revenues before expenses) yields into the “bottom line” or “net profit” (after all revenues and expenses have been accounted for).
3) Statement of Financial Position (Balance Sheet):
The Balance Sheet is popularly considered to be a snapshot of a company’s financial position at a given point in time. It lists the Assets, Liabilities and Owner’s Equity, with Assets totaling to Liabilities plus Owner’s Equity. The difference between Assets and Liabilities is known as “net assets” or “equity” or “net worth” or “capital”.
IMS Proschool’s Programs for careers in Financial Accounting
CIMA ( World’s leading body of Management Accountants)
The syllabus for CIMA includes the most essential and important sections of the curriculum of degrees like MBA, CWA, and CA. This knowledge is crucial from the perspective of Financial Accounting. Firstly, the CIMA deals with managerial issues like marketing, organizational behavior, project management, strategic planning etc.
Secondly, the CIMA syllabus has reference to topics like cost accounting and budgeting etc which help in placing a firm’s management’s capabilities in perspective. And finally, in analyzing financial statements and inferring ratios and their implications from the Balance Sheet, the CIMA course comes closest possible to the requirements of a Financial Accountant. Get more info here
Post Graduate Program in Management Accounting:
This program combines essential topics from Finance and Accounting with Management. It is also considered to be the shortest route to a CIMA certification, which, as mentioned above, is extremely relevant to a Financial Accounting career. For more info click here