Assignment

 How Financial Accounting Helps Top

Management In Future Decision Making

 Introduction
Financial accounting is the process of preparing financial
statements that companies’ use to show their financial
performance and position to people outside the company,
Including investors, creditors, suppliers, and customers.
This is one of the most important distinctions from managerial
accounting, which by contrast, involves preparing detailed reports
and forecasts for managers inside the company. Financial
accounting allows a business to keep track of all its financial
transactions. It is the process in which the company records and
reports all the financial data that go in and out of its business
operations. The accounting data is recorded on a series of
financial statements including the balance sheet, income
statement, and cash flow statement.

There are a series of accounting principles companies adhere to

in their financial accounting. The majority of publicly traded
companies in the United States follow the generally accepted
accounting principles (GAAP), a common set of standards
accountants follow when they complete their financial
statements.

There are three main areas where financial accounting helps

decision-making:
  It provides investors with a baseline of analysis for—and
comparison between—the financial health of securities-
issuing corporations.
 It helps creditors assess the solvency, liquidity,
and creditworthiness of businesses.
 Along with its cousin, managerial accounting, it helps
businesses make decisions about how to allocate scarce
resources.

 Financial Accounting Toolkit For Decision Making

 Understanding Financial Statements.
 Analyzing Financial Statements.
 Investment Decisions Under Certainty.
 Investment Decisions Under Uncertainty.
To Use this toolkit for making decision one should follow and go
through this procedure which are given below:

 Investing Decisions

Fundamental analysis depends heavily on a company's balance

sheet, its statement of cash flows and its income statement. All of
the financial statements for publicly traded companies are
created and reported according to the financial accounting
standards set forth by the Financial Accounting Standard Board
(FASB).

Investors use the information from financial statements to make

decisions about the valuation and creditworthiness of a company.
Without the information provided by financial accounting,
investors would have less understanding about the history and
current financial health of stock and bond issuers. The
requirements set forth by the FASB create consistency in the
timing and style of financial accounts, which means investors are
less likely to be subject to accounting information that has been
filtered based on a firm's current condition.

 Lending Decisions

Financial accounting is also a key for lenders. Because financial

statements outline all its assets as well as the short- and long-
term debt, lenders get a better sense of a company's
creditworthiness.

A number of common accounting ratios creditors rely on, such as

the debt-to-equity (D/E) ratio and times interest earned ratio, are
derived from a company's financial statements. Even for
privately-owned businesses that do not necessarily follow the
requirements of the FASB, no lending institution assumes the
liability of a large business loan without critical information
provided by financial accounting techniques.

Ultimately, a lender wants to know just how much risk is involved

by lending a company money, which can be determined by
reviewing the company's financial accounting. Once this is
determined, the lender will also be able to outline exactly how
much to lend and at what interest rates.

 How It Works
By providing a steady and up-to-date financial reporting, a
business is able to make appropriate decisions to:
 Reduce costs
 Increase sales
 Raise profitability
 Purchase new capital assets
 Best sources of financing,  duration, etc.
Owners and managers can now make informed choices to:
 Allocate human resources
 Continue or discontinue certain activities of the business
 Purchase or rent certain equipment used for the production
of goods/services
 And much more

A decision should never be based on information found on one

lone financial statement, because one financial report will not
provide the complete information needed to make the best
decision possible.  It would not provide the decision-maker a view
of the entire financial condition of its business.

 Conclusion
Reliable accounting serves a practical function not only for
investors and lenders but also for the firms themselves.The most
obvious benefit for businesses to complete their financial
accounting is to meet the legal and regulatory obligations
outlined for (public) companies. Companies must be honest about
their financial activities and the data must be accurate and
published regularly.

Beyond the regulatory and compliance hurdles financial

accounting helps clear, financial accounting also helps managers
create budgets, understand public perception, track efficiency,
analyze product performance, and develop short- and long-term
strategies.

Financial accounting is a way for businesses to keep track of their

operations, but also to provide a snapshot of their financial
health. By providing data through a variety of statements
including the balance sheet and income statement, a company
can give investors and lenders more power in their decision-
making.
The End