Importance and functions of Financial Accounting

 

Importance and functions of Financial Accounting:
Financial accounting plays important role in an organization. The following are the importance and functions of financial accounting:

1. Complete and systematic record of all business transactions: - The main importance and functions of a financial accounting it to keep complete and systematic records of all business transactions for future reference. In addition to this, accounting minimizes the possibility of occurrence of error and  frauds.

2. Ascertainment of operating results: The second  importance and function of financial accounting is to ascertain the profit which the business has earned or loss incurred for a certain period. By preparing trading and profit and loss account the profit or loss for a certain period is determined.

3. Ascertainment of financial position: Every trading and non-trading organisation wants to know the correct financial position of  their business. For this purpose, they prepare balance sheet at the end of every accounting period. Balance sheet provide information about the assets, liabilities and capital of the business.

 

4. Determination of tax liability: A business organisation has to pay different types of taxes. Accounting makes available financial informations to determine the tax- liability to the tax authority.

 

5. Provides accounting information to the concerned parties : Accounting is the language of business. With the help of accounting, various financial informations are communicated to the different concerned parties. Such parties may be owners, creditors, government, employees and  investors, etc. As they keep keen interest to know the result of the business.