Asset and Financial Accounting

Satisfactory Essays
Exam 03-Q5

Question 5

“Financial accounting is compulsory for companies. Therefore it must be the only type of accounting that managers need.”

You are required to:

Discuss the above statement and provide examples to support your points of view.
(25 marks)

Financial accounting is the field of accountancy concerned with the preparation of financial statements for decision makers, such as stockholders, suppliers, owners and other stakeholders. The fundamental need for financial accounting is to reduce principal-agent problem by measuring and monitoring agents' performance and reporting the outcome to interested end-users.
Financial accountancy is used to prepare accountancy data for people outside the organisation or for those, who are not involved in the mundane administration of the company. Meanwhile, it generates some key documents, which includes profit and loss account, patterning the method of business traded for a specific period and the balance sheet that provides a statement, showing mode of trade in business for a specific period. It records financial transactions showing both the inflows and outflows of money from sales, wages etc. Financial accounting empowers the managers and aids them in managing more efficiently by preparing standard financial information, which includes monthly management report tracing the costs and profits against budgets, sales and investigations of the cost.
It could be the only type of accounting that managers need. Because the role of financial accounting is provide legal information to managers such as financial accounts in the form of trading, profit and loss account and balance sheet. The paramount importance function is record serve a dual purpose as evidence in the event of any dispute regarding ownership title of any property or assets of the business, which protects and safeguards business assets. It also helps prevent unwarranted and unjustified use.
However, there are some limitations of

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