Financial accounting is the hallmark of any business. It holds the records of receivables, expenses, assets, and revenues. What is the primary purpose of financial accounting? Though financial accounting holds many purposes, the end goal is only one, business evaluation. Financial accounting helps to evaluate the financial sustainability of any business.
The purpose of accounting is to record, store, and analyze financial data. authorities use it for the great benefit of the organization. Similarly, financial statements are made to monitor the business activity. The goal behind financial accounting is to measure the business value and standards.
What is the primary purpose of financial accounting? This blog will answer this question as well as the purpose of the financial statement and the standards of financial accounting.
What is the Purpose of the Financial Statements?
The main goal behind financial accounting is to maintain financial statements. The record of the financial accounts is prepared for a certain period, specifically known as the financial statements. There are three types of financial statements:
- Income statement:
- Balance Sheet
- Cash flows statements
In the light of financial statements, the owners can monitor the activity of the business, cash flows, and other financial operations. In other words, the financial statements tell the financial position of any organization. The figures of the financial statements lead the managers and organizers to take the right decision.
What are the Standards of Financial Accounting?
The American Institute of Certified Public Accountants (AICPA) is the worldwide leading organization. It conducts dynamic research in the field of accounting. AICP leads the 413,000 members globally. Further, the Financial Accounting Standards Board (FASB) sets the standards in the profession of financial accounting. If you want to know what is the primary purpose of financial accounting? Get directed to the official website of the FASB.
Moreover, the Securities and Exchange Commission (SEC) authorizes the FASB to set standards in the finance world. So, FASB regulates better financial accounting methods and implementation accordingly.
What is the Primary Purpose of Financial Accounting?
Beginning with, the primary purpose of financial accounting is to report the operations and performance of any business to third parties or external users. For instance, public organizations are responsible to reveal the financial reports to the public. Similarly, private companies have to report to their owners, creditors, and investors.
Why Report to the External Users?
The financial accounting reports are of greater value for the owners and investors. The third parties (investors and creditors) can take better decisions about the company like:
· Tax Decisions
How many taxes does an entity have to pay? The government charges taxes based on financial information.
· Credit Position
What is the position of the credit? The organizations decide the credit decisions based on the financial accounting data or in other words financial statements. Lenders decide to grant some credit or withdraw it. The credit decisions affect the sales revenue, profit, and even manufacturing of the business.
· Investors Decision
What is the price per share of a business? What is the value of the business? it is known well from the organized financial data. The financial reports of any business help the investors to decide better about investment.
Furthermore, Union base bargaining also occurred through the financial statements. These statements help the union to know the financial position of the business. Consequently, the union decides the bargaining position and estimates how much a business can pay.
Likewise, accounting helps to maintain the record of the financial data like expenses, cash flow, debit, credit, profit, and loss. The purpose is to keep all transaction data secured and organized for future use subsequently.
Resultantly, the objective of financial accounting is to report the financial statements. What is the primary purpose of accounting? yet uncleared! Xebec consultants can guide you better. The professionals here have experience of dealing in the financial accounting and providing solutions. You can talk to a professional and get support.
Bottom line
To conclude the discussion, you can achieve many secondary objectives through the financial statements. The external users take on many decisions based on the credit and debit position of the business. Financial statements also tell the performance and worth of a business. Business managers and regulatory authorities can take new and bold steps to improve the activity.
Financial accounting adds greater value to businesses. To handle different operations and generate reports, financial accounting helps differently. It is a source to find out the financial position of any business. With the help of a financial statement ranging of a certain period, one can assess the current and past performance of any business.
