Accountancy

Most of the people has the misconception about the term" Accountancy" or "Accounting" , they immediately think of figures, numbers, adding, subtracting and big lined books covered in dust. But, the term accountancy or accounting refers to the system of recording, verifying, and reporting of the value of assets, liabilities, income, and expenses in the books of account (ledger) to which transactions (Debit and Credit entries) are chronologically posted to record changes in value. Such financial information is primarily used by lenders, managers, investors, tax authorities and other decision makers to make resource allocation decisions between and within companies, organizations, and public agencies. Accounting has been defined by the AICPA as

" The art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of financial character, and interpreting the results thereof."

Financial accountancy (or financial accounting) is one branch of accountancy concerned with the historically process of preparing the financial information such as Trading account, Profit and loss Account, Balance Sheet - (Finacial statements) for decision makers, such as stockholders, suppliers, banks, employees, government agencies, owners, and other stakeholders. In other words, Financial accounting is prepared for providing the company status to external people (i.e: not involved in the day to day running of the company). In short, Financial Accounting is the process of summarizing financial data taken from an organization's accounting records and publishing in the form of annual (or more frequent) reports for the benefit of people outside the organization. Financial accountancy is governed by both local and international accounting standards.

If you have any query, please feel free to ask and send an e-mail to this ID:askto5@gmail.com ORFeel free to give comment to it by giving your e-mail id for communication purpose.

Financial Management

Financial Management is concerned with the managerial decision that results in acquisition and financing of long term and short term credit for the firm. As such it deals with the situation that requires selection of specific liability and investing the fund in an effective manner.

The management makes use of various financial methods and techniques to make use of administration affairs in a very effective and efficient way. Thus, financial management is mainly concerned with the proper utilization of funds and the funds are utilized in a manner appropriate to the risk, cost and control in a given situation.

Scope of financial management is rising of funds and effective utilization of the same keeping in view the various objects of the firm.

Traditionally, the basic object of Financial Management is the maintenance of liquid assets and maximization of the profitability of the firm.

Any financial actions which creates wealth or which has a net present value over ‘Zero’ should be undertaken, the objective is maximizing the economic welfare of the shareholders of the company by increasing the EPS (Earning Per Share). The financial management should therefore follow a policy which increases the earning per share in long run.

Role of Financial Management in various areas:

Financing Decision:
Provision of fund is required at any particular point of time is one of the primary decision taken by the financial manager. He has to identify the resources from which the funds can be raised at various different cost and other repayment schedules. Management has to take the appropriate decision by evaluating the overall position.

Investment Decision:
This comprises decisions relating to the investment in both capital and current assets. The finance manager has to evaluate the different investing proposals available and select the best possible out of it. The investment in current assets will depend upon credit policy after the customer stocking of goods, etc. and long term investment will depend upon the future objects in hand by the organization.

Dividend Decision:
The dividend decision involves the determination of the amount of divided to be payable to a shareholder. The divided decision is a mainly depend upon the profit earned by the organization, but in reality this decision depends upon many other factors like tax position, future projects in hand, EPS, market price of share, etc.

Funds Requirement Decision:
This is the most important function perform by financial manager. A careful estimate has to be made to find out the total fund required by the organization in terms of long run and short run funds i.e. fixed or working capital requirement.

Methods of Financial Management:

It is mainly concerned with procurement of fund and effective utilization of the same. The various methods adopted for achieving the objective of the firm can be described as follows. The following are the 2 major objective of financial management:

· Measuring the effectiveness of firms, actions and decision. Management accounting is a futuristic approach. The answer to any decision can only come to know after a specific time. So the management accountant has to evaluate the every part decision taken in the view of profit or loss.

· Measuring the validity of decision regarding accepting or rejecting future projects.

Financial methods help in decision making of various alternatives available to a management accountant. Following are the important tools or methods available to management accountant in performance of his duties.

Cost of Capital:
It helps the manager in deciding about the source from which the fund can be raised. In case of different alternatives sources, each fund has certain cost elements in it. Compare the alternative cost effectiveness and selecting the cheapest of the same is a major role of management accountant.

Capital Budgeting (Appraisal Approach):
It includes the method such as pay back method, net present value, profitability index method, etc. with the help of which management accountant has to take the decisions.

If you have any query, please feel free to ask and send an e-mail to this ID:askto5@gmail.comORFeel free to give comment to it by giving your e-mail id for communication purpose.