Financial accounting is a branch of accounting which involves a process of recording, summarizing, and reporting the monetary transactions resulting from business operations for a particular period of time. These transactions are summarized in the form of trial balance or financial statements which record the business performance for a specified period. Financial accounting uses some pre-defined accounting principles and which principle to be used depends on the regulatory and reporting requirements that the business faces.

The Financial accounting presents the five main classifications of financial data:

• Revenues: It is the total amount of income generated by the company through sale of goods/services.
• Expenses: An expense is the cost of tasks that a company incurs to generate revenue. For example: Salary, purchase of raw material, advertisement etc.
• Assets: Things that are convertible in cash or owned by a company which have future monetary value that can be measured. For example: Cash in hand, machinery, furniture etc.
• Liabilities: These are something a person or company owes. A liability is an obligation between one person and another not yet paid for.
• Equity: It is the amount of capital invested or owned by the owner of a company.

Financial Accounting helps the businesses in creating budget. In budgeting, business anticipates revenues and uses that knowledge to make decisions about the growth of the business. Budgeting helps with both planning and controlling of the finances of the business. Through financial accounting, company's financial records can be reviewed in which not only where the money went can be seen but what good it did in the long run can also be analyzed. With that kind of information, informed decisions can be made regarding which tasks need to cut down and which to expand.

The goal of most companies is to make profit, but the road to get there is one which owners have to build by them. Good plan will take your business to richer destinations, but good plan requires good information. Financial accounting reports are needed to productively manage any company or business. There is no substitute. Not having correct and appropriate information about how effectively a business is running is a way for disaster.

So, basically the purpose of Financial Accounting in business is to

• • Keep financial records
• • Avoid legal problems
• • Create a Budget
• • Analyze Performance
• • Make Strategy

Therefore, Financial Accounting plays an important role in the management of any business. Companies run on the basis of money. If you can't control the money, you can't control your business. If one properly does financial accounting of its company’s income and expenses, then he can easily manage the flow of money and thereby direct the course of his business.

Ayushi Jain

Commerce Faculty

P C Training Institute Ltd.