Function of Financial Accounting

Financial Accounting Accounting can be defined as “the process of identifying, measuring and communicating economic information to permit informed judgements and decisions by users of the information”. Accounting information is communicated using “financial statements”.

What is the purpose of financial statements? To report on the financial position of an entity (e.g. a business, an organisation) To show how the entity has performed (financially) over a particular period of time (an accounting period). The most common measure of performance is profit.

Organisations and Financial Systems Organisations have a significant role to play in society and have multiple stakeholders to whom they are accountable. All organisations require systems of financial management to enable them to produce accounting information.

Accounting Information Accounting information helps businesses be accountable: By providing a record of assets owned, amounts owed to others and monies invested. By providing reports showing the financial position of an organisation and the profitability of its operations.

Accounting Information Helps management actually manage the organisation Enables potential investors to evaluate an organisation and make decisions. Users of accounting information: - shareholders - lenders, customers, suppliers, gov. Dept, employees, society Financial accounting is geared towards external users of accounting information