Financial accounting is more regarded as the information medium for external stakeholders of the company.  Before outlining the information conveyed in financial accounting it is imperative to outline the salient objective of accounting.  This encompasses providing financial information to interested users in order to aid them in their economic decisions.  Since the information needs of external users are less than that of internal ones (management) the detail will be less and the time span provided will be greater.  Indeed the main financial accounting report provided to external users encompass the financial statements.  These are provided on an annual basis and mainly entail the Income Statement, Balance Sheet, Cash Flow Statement and Statement of Changes in Equity.

Under the income statement the profitability of the company is outlined on an accruals basis[1].  Revenue and expenditure are matched to determine the Net Income/(Loss) generated by the organization.  This aids users in evaluating the going concern of the company and potential to enhance resources.

The Balance Sheet is basically a photo of the assets, liabilities, capital and reserves balances at a particular date.  This is fruitful in evaluating the liquidity and financial stability of the company.  Cash is the life blood of the firm and therefore holds considerable importance.  Indeed the Cash Flow Statement is provided, which outlines the cash generated/(used in) operating, investing and financing activities.  Such statement further aids the liquidity analysis mentioned above.  It is irrelevant that the firm generated profits unless it does not hold the ability to pay its commitments.

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The statement of changes in equity basically outlines the movements in share capital and reserves during a particular time frame.  This statement is highly of interest to equity investors, who can evaluate the capital appreciation and the returns received in form of dividends.

Reference:

Randall H. (1999). A Level Accounting. Third Edition. London: Letts Educational.

[1] Relies on the accruals concept, which states that revenue incurred in a particular period is matched with the expenditure incurred irrespective of the date of payment.

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