Accountancy and Financial Management

Accountancy and Financial Management Introduction of Accounting and Types of Finance

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Accountancy and Financial Management

Accountancy and Financial Management Introduction

Accounting: involves recording, preparing, and recording financial transactions. Investors use procedures such as double registration to ensure accurate financial information. By understanding accounting, a business can monitor its financial health and make decisions.

Financial Management: Focuses on financial management to achieve organizational goals. This includes planning, budgeting, investment, and management of financial resources Financial managers analyze data to allocate funds efficiently and maximize profits

Types of Finance

Finance can be classified into two part

  1. Private finance: which includes the individual, firms, business or corporate financial activities to meet the requirements.
  2. Public finance: which concerns with revenue and disbursement of government such as central government, state government and semi-government financial matters.

Financial management

  1. Financial management is an integral part of overall is concerned with the duties of the financial manager in the business firm.
  2. The term financial management has been defined by Solomon;it is concerned with the efficient use of important economic resources namely, capital funds’
  3. The most popular and acceptable definition of financial management as given by S.C Kuchal is that ‘ financial management deals with procurement of funds and their effective utilization in the business

Accountancy and Financial Management

Scope of financial management

  1. Financial Management and Economics: Economic Economic concepts like micro and macroeconomics are directly applied to financial management approaches. Investment decisions, micro, and macro-environmental factors are closely associated with the functions of a financial manager.
    • financial management also uses economic equations like money value discount factor’ economic order quantity, etc. Financial economics is one of the emerging areas, that provides immense opportunities to finance, and economic areas.
  2. Financial management and accounting: accounting records include the financial information of the business concern. hence we can easily understand the relationship between financial management and accounting in the olden periods. both financial management and accounting are treated as the same discipline, and it has been merged as management accounting because this part is very much helpful to finance managers to making decisions.
  3. Financial management or mathematics: modern approaches to financial management apply a large number of mathematical and statistical tools and techniques They are also called econo metrics.
    • Economic order quantity, discount factor, time value of money, the present value of money, cost of capital capital structure theories, divided theories, ration analysis, and working capital analysis are used as mathematical and statistical tools and techniques in the field of financial management.
  4. Financial management and production management: Production management is the operation part of the business concern, which helps to multiply the money into profit. the profit of the concern depends upon the production performance Production performance needs finance because the production department, raw materials, machinery, wages, operating expenses, etc.
    • these expenditures are decided and estimated by the financial department and the finance manager locates the appropriate finance to the production department. the financial manager must be aware of the operational process and finance requirement

The function of financial manager:

A financial manager is a person with a key position in a company, who Is solely responsible for carrying out the finance functions of the company.

  1. Financial forecasting and planning
  2. Acquisition of funds
  3. Analysis of Investment Activities
  4. Evaluation of Investments opportunities
  5. cash management and profit planning
  6. understanding capital/financial markets
  7. Financial decision making
  8. management of risk
  9. performance of risk
  10. coordination and control

Functions of financial management: Executive functions.

  • Financial forecasting
  • financial planning
  • financial decision making
  • financial Negotiation
  • Investment decision
  • profit allocation/dividend decision
  • management of cash flows
  • appraisal of financial performance

Routine functions:

  1. Record keeping
  2. preparation of various financial statements
  3. arrangement of cash balances as per requirement
  4. management of credit
  5. safety of significant financial documents

Difference between financial accounting and management accounting

Basis of DifferenceFinancial Accounting Management Accounting
ObjectiveFinancial Management: Internal users such as directors, managers, executives, and employees use business management information and data to make strategic decisions, prepare plans, set budgets and measure organizational performanceFinancial Accounting: The main objective of accounting is to provide accurate and reliable financial information about the organization’s performance and finances to external users such as investors, companies, creditors, regulators, and other stakeholders. It focuses on documenting and reporting financial transactions in the past
UsersFinancial statements: External users, including investors, creditors, regulators, and financial analysts rely on financial statements to assess the organization and working of financial health.Financial Management: Internal users such as directors, managers, executives, and employees use business management information and data to make strategic decisions, prepare plans, set budgets, and measure organizational performance
FocusFinancial accounting focuses on historical financial data and compliance with generally accepted accounting principles (GAAP) or International Financial Reporting Standards (IFRS).Management accounting focuses on future-oriented information and assists management in planning, budgeting, forecasting, performance evaluation, and strategic decision-making.
ScopeFinancial accounting covers the preparation of financial statements, including the income statement, balance sheet, cash flow statement, and statement of changes in equityManagement accounting encompasses a broader range of activities, including cost accounting, budgeting, variance analysis, product costing, pricing decisions, capital budgeting, and performance measurement
Accountancy and Financial Management

Financial cost and management accounting

  1. Purpose
    • Financial Accounting: The primary purpose of accounting is to provide accurate and reliable financial information about an organization’s operations and finances to external stakeholders such as investors, creditors, regulators, and the public. Financial analysis refers to financial statements, such as income statements, balance sheets, cash statements, and statements of changes in equity, according to generally accepted accounting principles (GAAP) or International Financial Accounting Standards (IFRS).
    • Managerial Accounting: Managerial accounting, on the other hand, focuses on the process of providing financial and non-financial information to internal users such as managers, executives, and decision-makers in an organization to aid in planning, control, and decision-making. He prepares reports, budgets, forecasts, cost analyses and performance appraisals for internal use.
  2. Users
    • Financial reporting: Outside parties, including investors, accountants, regulatory agencies, and financial analysts, rely on financial statements to assess a company’s financial health and performance.
    • Executive Accounting: Internal employees such as directors, managers, department heads, and employees use management accounting reports and information to make strategic decisions, plans, budgets, and monitor organizational performance
  3. Scope
    • Financial Accounting: Financial accounting focuses on historical financial data and compliance with accounting standards. Emphasizes the preparation of accounts and recording of transactions in accordance with established rules and regulations.
    • Management Accounting: Management Accounting has a broad scope and involves the analysis of financial and non-financial information to support managerial decision-making. Includes budgeting, forecasting, cost analysis, variance analysis, performance measurement and strategic planning

Question and Answer

Question:1 What is management accounting and finance?


Management accounting: involves tracking financial and business information to help managers and executives make decisions. It includes things like budgeting, planning and financial analysis to see where money is being spent and how it can be spent effectively.

Finance: Finance includes money management, investment and financing. It includes programs such as investments, investments and plans for the company’s future financial health. Finance helps companies decide where to invest and how to manage risks

Question:2 What are the golden rules of accounting?


  1. Debit what comes in, Credit what goes out: This means that when something valuable comes into the business, we record it as a debit. When something valuable goes out, we record it as a credit.
  2. Debit the receiver, Credit the giver: When we receive something valuable, we debit the account. When we give something valuable, we credit the account.
  3. Debit what comes in, Credit what goes out: This rule applies to assets and liabilities. When an asset increases, we debit it. When it decreases, we credit it. For liabilities, it’s the opposite

Question:3 What is the full form of GAAP?

Answer: generally accepted accounting principles

Question:4 What are types of accounting?


  • Financial Accounting
  • Managerial accounting. …
  • Cost accounting.
  • Auditing.
  • Tax accounting. …
  • Accounting information systems.
  • Forensic accounting.
  • Public accounting

Question:5 What are the 5 basic accounting principles?


Cash Recognition: This principle states that revenue should be recorded when it is received, regardless of when it is received. For example, if a company sells a product to a customer, it will recognize revenue at the time of sale, even if the customer has not yet paid.

Principle: This principle states that expenses should be recorded at the same time as the income they contribute to production. He recognizes the expenses associated with the income in the same period including the income of himself.

Historical cost: Under this policy, assets and liabilities must be recorded at their purchase price. This means that once an asset is acquired, it is recorded in the balance sheet at the price paid to acquire it, regardless of its current market value.

Principle of Conservatism: The principle of conservatism suggests that when there is uncertainty in accounting, it is better to be conservative and cautious. This means that potential losses will be recognized immediately, but potential gains only when they are known.

Consistent Standards: Consistent standards require accounting procedures and standards to be used consistently from one period to another. It allows for the evaluation of financial information in real-time, enabling users to analyze trends and make better decisions.

Question:6 What is gap in accounting?

Answer: Generally accepted accounting principles (GAAP) are a set of accounting policies, methods, and procedures used in the United States. They provide a common language for companies and investors to communicate financial information. GAAP ensures consistency, comparability, and accuracy in financial reporting.


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