Introduction of financial management, Financial Management

Introduction of Financial Management

Accounting has evolved and emerged within response to the social and economic needs of the society. The procedure of book keeping (maintenance of record of economic activities) established as a direct result of the partnership on a large scale.  In early times the accounting was merely concerned along with ascertainment of results of business and there was no difference among ownership and management of business.  The profit calculation was a easy comparison of the financial values at the starting and end of the transactions or series of transactions.

The accounting procedure has new orientation these day and the evolutionary reasons for the similar are the divorce of the ownership and management and the emergence of professional management over a period of time.

The business organisations have grown within size particularly the publicly held corporations thereby affecting the public at large (whether or not they are shareholders).  As an output of these changes the quality and quantity of information required through several stakeholders' viz. shareholders, creditors, potential investors, customers, employees, government departments and agencies has increased many folds.  The fact is that a huge variety of groups of people wholly divorced from the management of the enterprise are interested in the financial statement that is supposed to provide a true and fair picture of the position and progress of the enterprise.  These groups rely on financial statement to make informed decisions.  The two most significant financial statements are Profit and Loss Account and the Balance Sheet.  The function of financial statements has evolved over a period of time and is as follows:

1. Financial statements gives the relevant information to varied groups to form informed decisions;

2. Financial statements depict business's financial progress & position;

3. Financial statements help settle the claims for/against the business entity;

4. Financial statements help in creation of policies for efficient conduct of business.

The primary framework under that the financial statement is prepared is the accounting or the accounting procedure. Therefore the accounting may be described as "the process of identifying, measuring & communicating economic information to permit informed judgments and decision through users of the information". (American Accounting Association 1966).  More recently the American Institute of Certified Public Accountants (AICPA) has described accounting as "Accounting is a service activity.  Its function is to give quantitative information primarily financial in nature about economic activities which is intended to be meaningful in making economic decisions".

Posted Date: 2/6/2013 12:28:55 AM | Location : United States

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