Course: Financial Accounting & Analysis

Internal Assignment Examination

1. Financial accounting information

Answer:
Accounting is the process of identifying, measuring and communicating economic information
to permit informed judgments and decisions by the users of accounts. There are two sub-fields
of Accounting:-

Financial Accounting: It measures the financial performance of an organization using

standard conventions to prepare and distribute financial reports.

Managerial Accounting: It uses both financial and nonfinancial information as a basis

for making decisions within an organization with the purpose of equipping decision
makers to set and evaluate business goals by determining what information they need
to make a particular decision and how to analyze and communicate this information.

Points Financial Accounting Management Accounting

Users of Report External Users Internal Users
Types of Report Financial Statement: Balance Sheet, Internal Reports: Job Cost Sheet,
Income Statement, Cash Flow Production Cost Report, Cost of Goods
Statement etc. Manufactured etc.
Accounting It follows the Generally Accepted It is not bound to follow the Generally
Principles Accounting Principles (GAAP) or Accepted Accounting Principles (GAAP)
International Financial Reporting
Standards (IFRS).
Audit Independent Auditors certifies and There are no independent audits verifying
expresses their opinion on the FS. the information.

Unit of The financial information is usually Besides, monetary units, management

Measurement expressed in monetary terms. This is accounting uses measures such as machine
to help in making comparisons hours, labour hours, product units, etc. for
between different data. the purpose of analysis and decision
making.
Reporting Report is about the company as a Management determines the contents of a
Purpose whole. report and its format. Reports are
prepared only when management believes
the benefit of using the report exceeds the
cost of preparing the report.
Advantages of Financial Accounting
 Reveals the financial performance of a business during a period and its financial
position at the end of that period.
 Provides relevant information to investors and lenders, both present and
prospective to take appropriate investment and lending decisions

Limitations of Financial Accounting

 Provides only historical information about the performance and financial

performance of business. It fails to provide estimates and projections for future
which form the basis of business decisions.
 Provides information about matters that can be quantified. Many other items
such as quality of management are important for the success of a business. Since
these items cannot be quantified, these are not reported by Financial Accounting