Financial accounting in an organization plays an essential role, with the help of financial accounting, users can know the financial status of the organization. Financial accounting mainly refers to collecting, summarizing and presenting the financial information to the business owner. It involves the preparation of the financial statement which gives the overview of the company’s financial position over a specific period of time.
Here in this blog, we will discuss the financial accounting, its key roles and functions, the importance of financial accounting and Some Common Mistakes.
Key Roles of Financial Accounting
Here we have provided you with some of the key roles of financial accounting:
- Financial accounting works on providing transparent, standardized reports for external users to assess a company’s health.
- It helps you in decision making about what you can do for your organization for growth.
- With the help of Financial accounting you can easily compare your company’s financial health with other companies.
- It provides you with a way you track your business’s financial performance over time.
- You should have your historical financial data to create realistic budgets and forecast future cash flows.
- By making a maintained, systematic and organized record, the chances of fraud become null.
- It helps to build trust and credibility with the shareholders and regulators. Maintains the goodwill of the organization.
- It ensures that your business is following all the accounting standards and legal aspects needed to run a business.
Why is Financial Accounting Important?
Financial accounting is very important in any business. It is the way by which investors, stakeholders and owners watch the company’s financial health, stability and growth potential. In the financial accounting of your business, you store the records of the financial statements that can be used in various tasks. It enhances the company’s goodwill and also promotes overall transparency and comparability across businesses, which strengthens trust in the financial markets and supports a stable economy.
Some Common Mistakes in Financial Accounting
Common financial accounting mistakes that you have to remember:
- Data Entry Error: These are the errors that can be caused by manual data entry created by a human. It includes duplicacy of data entry, forgetting to record a transaction, transposing digits, etc.
- Combination of Finances: Many small businesses still have the same business and personal finances which creates chaos. It should be separated which reduces the chances of mistakes.
- Not Reviewing Financial Statements: Many business owners do not review their earnings statement, balance sheet or cash flow report which can cause stress as you will not be able to see cash shortages, increasing debt or a fall in revenue till it is too late.
- Wrong categorization: Incorrect categorization of expenses for example, recording capital expenditure as a regular expense. The proper categorization is very important to maintain the accuracy of the financial accounting.
- Ignoring Cash Flow: Focusing on the revenue but not monitoring the actual timing of the money coming in or going out from the business. Regular cash flow forecasting is essential for long-term stability.
Functions of the Financial Accounting
Basic functions of financial accounting are given below:
- Recording the financial transaction systematically, for example sales and purchases and a ledger.
- Making a category of the recorded transactions like assets, liabilities and revenue for getting a better financial view.
- Summarizes the information into the key financial statements.
- Preparing the standardized reports for the stakeholders, for example, the Income statement, the Balance sheet report and the cash flow statement.
- Providing data for internal decision-making, planning, and performance evaluation.
- Analyzing financial results using accounting information.
How to Become a Financial Accountant?
To become a financial Accountant you have to earn a bachelor’s degree in accounting. For the entry-level accounting positions, a bachelor’s degree in accounting is necessary. Some of the companies also require a master’s degree to be employed in their company.
You can have a recognized certification in financial accounting, like a CPA, certified public accountant. To work in a good company and make a future, you have to get a CPA certificate. You can have other certificates like (CMA) certified management accountant, CIA certified Internal Auditor, CFE (Certified Fraud Examiner, etc.
If you want to build your career in this profession, you also have to develop some skills and qualities to become a successful financial accountant, like attention to detail, Analytical skills, critical thinking, maths skills, communication skills, organizational skills and tech skills. Having these skills makes you the best candidate for the accountant role in any company.
Conclusion
Financial Accounting plays a vital role in the growth of any organization, as it is the broader view of the company’s overall status. Investors and stakeholders also make decisions after having the financial statements of the company. It ensures trust and goodwill of the company by making proper financial accounting. Enhances Data security as all the sensitive financial data is kept protected from loss.