Financial accounting involves the collection of information concerning the flow of money throughout an organization, including expenses incurred, income earned, and debts or other financial obligations. These types of transactions are recorded in the accounts of cash and accounts receivable and accounts payable. Although financial accounting is not necessarily concerned with the preparation of financial statements, it can often be used as a foundation for such reports.
The purpose of managerial finance is to facilitate the transfer of resources within an organization to increase the amount of cash generated by the business. In addition, this branch of bookkeeping attempts to improve the efficiency of the organization by minimizing the amount of wasted effort by recording all resources to be used for the benefit of the company in the same manner as they are being used.
Financial accounting is a vital part of every organization that utilizes the services of a bookkeeper. In fact, some businesses require the services of a bookkeeper simply to meet the minimum legal requirements of doing business. Therefore, any bookkeeper employed by the company is considered an integral part of the business management process.
Bookkeeping is a useful analytical tool for managing the overall performance of an organization. The principles behind the application of these principles to organizational practices provide an excellent foundation for the identification of the sources of income that need to be used in order to maintain or increase the organization’s productivity and production levels. The identification of these sources of income provides managers with the data necessary to make the appropriate changes that will increase the quality of the production and profitability of an organization. These changes are applied in the formulation of a plan that will ultimately result in increased profits.
Management accounting is a field of bookkeeping that uses several different methods of analysis. The most common methods used in the field of managerial finance include the following: cash flow method, credit method, cash flow model, cash basis method, profit method, and cash method. Cash flow method is the most fundamental method of bookkeeping used in most accounting firms. It attempts to determine the relationship between the present value of an asset and its future discounted cash flow based on the time period over which it is expected to earn money.
A cash basis method applies a mathematical formula to the valuation of cash flows to find the cost to purchase an asset, while a profit method compares the sales price of an asset with its current value and then compares it to the cost of producing the product in which the asset will be sold. The cost of producing the product in this case is calculated as a weighted average of all raw materials required to produce that product. A cash method is usually more accurate than the other methods because it uses historical data to calculate the cost of producing the product without taking into consideration changes in prices and the volume that will be produced during production cycles. The cash basis method is also less complicated and accurate than most of the other methods.
Cash method uses an accounting system where all the assets of an organization are converted into cash at the time of purchase and the cost of producing the same quantity of goods sold is determined. Profit method on the other hand, uses a discounted cash flow method that determines the value of an asset using the average selling price of a given asset.