Financial Accounting Theory

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Financial Accounting Theory

Financial Accounting Theory


In order to run a business successfully it is the responsibility of the people working in an organization to fulfil their tasks of production, forecasting, marketing, accounting and financing activities. All these activities have their importance in the performance of the organization. Accounting is one of the key activities in an organization as it facilitates the firm in adapting an activity or not. Accounting plays a key role in supporting the decisions taken inside the organization or in the external world. The assessment later in the assignment will help us understand that does accounting have any other role than only satisfying the consumer needs. The assessment will help in understanding different roles of accounting and who are the users of accounting.


Today accounting has emerged as a service activity that responds and facilitates the economic needs of the people in the society. It helps the management to take financial decisions within an organization. It has been often termed as a communicator or language of business. Accounting has been defined as a process of recording, measuring, identifying and communicating relevant financial information for taking financial decisions about an activity related to the success of the organization. The world has limited resources so accounting helps the firms to take decisions regarding best allocation of resources to earn maximum profits. It is the function that s performed by the accounting personnel's in the organization that facilitate the decision makers in the organization to make decisions that will result in achieving the objectives of the organization. Accounting has several critical elements that are significant in analysing the data collected like collecting, recording, identifying, recording information under different categories, classifying different accounts, developing reports and summarizing the information so that the users of the accounting information can understand the message of the firm being conveyed to the people.

Accounting has several roles thus it will not be correct to say that it only has the role of satisfying user needs. Accounting today helps the organizations in making financial decisions regarding the firm. The financial information conveyed is used by organizations for example healthcare organizations, government agencies, families, non-profit organizations and etc. to make efficient and effective economic decisions. There are several other users of accounting which are divided into two broad categories: external and internal users. Internal users are the people inside the organization or the people involved in the management of the organization. The accounting information in the form of projection reports, budgeting reports, target reports and etc. are used by the managers either in production department, sales department or any other department. The information conveyed by through accounting helps in evaluating the performance in actual with the estimated performance in order to find that are all departments performing according to the goals set by the policy makers. The variances in the estimated and the actual results help the managers to adapt ways that can help them in taking measures to improve the ...
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