Towards a Common Financial Reporting and Financial Accounting Systems Framework For Nigerian Banks

As the banking reforms in Nigeria progress from one stage on to another, each new situation presents its own challenges. While some likely fallout of the reforms can be forecasted with certainty, others emerge with the passage of time. The 31st December 2009 common year-end has become a reality. The banks have forwarded their draft financials to the CBN. The CBN needs to confirm the integrity and completeness of the financial reports before approving them. This presents yet another series of challenges for the Regulator as this time around, their can be no excuses.

One of the reasons advanced for the crises in some Nigerian banks had to do with inaccurate financial reporting. It was adduced that some loss-making financial institutions not only declared profits but paid dividends using depositor funds. The multiplier effect of such actions on the future financials of a firm/bank is at most imaginable. With the common year-end and the adoption of International Financial Reporting Standards, a golden opportunity has arisen for the CBN to rectify these anomalies.

First and foremost, it is important that banks send in their reports using a common financial reporting system framework. This will facilitate the comparison of a banks’ financial performance over time and against that of other banks and the industry itself. The risk-based assessment of financial reports is thus simplified. It might be necessary for the CBN to further improve the quality of banks’ financial reporting beyond what already exists.

Secondly, it is vital that the ‘target examination’ of the banks being carried out by the CBN in this wake does NOT simply focus on ascertaining data integrity. There is absolute need to also focus on each banks’ financial system integrity. While recalling the popular phrase of ‘Garbage In, Garbage Out’, data integrity mainly focuses on data accuracy and completeness while financial system integrity focuses beyond data to all the other key elements of the financial information structure. Financial system integrity is definitely more holistic and reliable. To this end, a set of parameters for ascertaining system integrity might be required. The financial regulator must avoid a situation of garbage in garbage out of financial data, as that will fundamentally make inaccurate any information derived from the use of such data.

In addition to the above, perhaps it is also time for the introduction of a common financial accounting system framework for Nigerian banks. The framework should recommend the basic foundations or elements on which the entire financial accounting infrastructure of all banks should be based. This no doubt will take into consideration the nature of banking services in Nigeria. Recommendations for the scope of the charts of accounts, account classifications, internal control systems, financial accounting software, operating procedures/manuals and the likes should be paramount in this objective. Most of all, it is important that the whole system is simplified.

The Nigerian Government intervention which resulted in the injection of six hundred and twenty (620) billion Naira banking stimulus package is no doubt unprecedented. But the real challenge has to do with the implementation of the other remedial measures required to put the financial industry back on the path of recovery, growth and stability. Some of the above recommendations may represent necessary regulatory innovations. While some may argue that such measures will make the industry much more sophisticated, it is vital to note that if simplicity is considered as a guiding principle of the banking reform measures, complications are consequently eliminated.

Financial Accounting With Double Entry Bookkeeping – Traditional Methods of Financial Accounting

In this series of articles it proposed to cover the following topics. In this article I have discussed the first one given below. More articles describing the other listed topics below may soon be published.

Meaning of Bookkeeping
Definition and objectives of Bookkeeping
Accounting Systems
Branches of Accounting
Uses of Accounting
Limitations of Financial Accounting
Explanation of important Accounting terms
The Accounting Cycle
Responsibilities of an accountant
Importance of data in accounting
Parties interested in accounting information

In today’s world of ours every activity is with some motive, i.e. purpose. In most of the cases. The purpose is to earn profit while in other cases the purpose may be social welfare, providing education, healthcare, etc. Whatever may be the purpose the activity is likely to be an organized affair. Every organization has to use resources-material, labor, services, capital and to work effectively the people in the organization require information. Money must be spent carefully. If a person spends carelessly, a day would come when he will be left with no money. Same can be said about a business. A business receives money from different sources like sale of goods, sale of assets, receipt of various incomes like rent, interest, commission etc. It has to spend money on items like expenses, purchases etc.

A business man should manage his business in such a way that he should receive more than he spends, other wise he will be in trouble because he will have to meet out expenses from the original amount invested by him for starting business. Thus capital of the business will be reduced due to this loss. If this process is allowed to continue for a long time then the whole capital of the business will be washed away. If the businessman manages his affairs in an efficient way and if receipts are more than the payments year after year it prospers and grows in size.

So, it can be said that profit increases the capital and loss reduces it. It should be kept in mind that profit or loss is the result of cost of goods sold and sales. In actual practice, if a business is to be run at profit then it has to sell goods at such a price as will enable him to meet out not only expense on account of cost of goods sold but also other expenses like, rent, salary, interest, insurance etc. Thus for making a profit either sales should be kept sufficiently high to meet out all expenses or expenses should be kept low so that they are fully met out of sales. Besides it, business also maintains certain properties i.e. furniture, building, machinery, equipment etc. Similarly, it also borrows money from time to time. In order to keep property in good condition, to pay back in time the debts, to keep down expenses, and to increase sales it is necessary to keep a constant watch, it is necessary that the proprietor of the business is kept well informed of the behavior of these items.

With a view to supply such information the art of accounting was developed. It supplies the following information to traders :

(1) How much will be the total earnings during the period;

(2) What will be the expenditure during the period on salaries, wages, lighting, insurance, rates and taxes etc;

(3) How much will be the profit or loss;

(4) How much will be the capital and causes of its increase or decrease; (5) Nature and value of assets possessed by the business;

(6) Nature and amount of liabilities;

(7) Customers who owe to the business and the amount in each case;

(8) Suppliers to whom the business has to make payments and the amount in each case; and

(9) Other facts for filing sales tax or income tax returns.

Meaning of Bookkeeping

Book-keeping is that branch of knowledge which tells us how to keep a record of financial transactions. The need for recording such transactions arise because

(1) it is difficult to remember the various financial payments and receipts taking place during a period of time;

(2) in modem forms of business organizations the control of business rests with different persons and the results are to be reported to the owners;

(3) the financial information is, required for the purposes of costing, budgeting, forecasting and planning; and

(4) Book-keeping records are to be submitted to various government agencies like Income Tax and Sales Tax’ authorities for taxation purposes.

Most of us do maintain some kind of a written record of their income and expenditure. The essential idea behind maintaining such a record is to show the correct position regarding income and expenditure. Such a record should be clear and systematic so that it can be easily understood. It should show to whom a payment has been made when and what for. The need for maintaining a record of income and expenditure in a clear and systematic manner has given rise to the subject of book-keeping. Book-keeping can as such be defined “as an art and science of recording business transactions in a systematic and, chronological order”.

The necessity of recording all the transactions clearly and systematically can not be over emphasized. Goods may be sold on credit to several persons. The latter would pay the price of the goods to the vendor later. The vendor would like to know, from time to time what amount is due and from whom. However, strong one’s memory may be, one cannot hope to remember all the details regarding all the transactions. Apart from this, the object of business is to earn profits; and every merchant likes to know at the end of a financial year how much profit he has earned during the course of the year. For this purpose, he would need a lot of factual information which can be derived from written or computerized records of transactions, provided such records have been properly kept; in modern times using a computer software like HiTech Financial Accounting. As such proper maintenance of books of accounts is indispensable for a businessman.

Financial Accountability For Grant Seeking Ministries – What it is and Why You Need It

As solicitors of public funds that are supposed to be used to accomplish great things in the community and the world, nonprofits must show they use donated funds for the purposes intended. They also need to show the sources of their funding and what portion goes directly to their mission versus toward administrative or fundraising expenses. Financial audits are one solid way to reassure the public and funding sources that you are financially accountable and responsible.

Nonprofits are not legally bound to conduct audits. But in the interests of transparency and accountability and your ministry’s long-term benefit, your bylaws should mandate them on an annual basis. The Evangelical Council on Financial Accountability (ECFA) requires its members to submit to an annual audit by an independent auditing firm, one that follows generally accepted auditing standards (GAAS) and generally accepted accounting principles (GAPP).

As the ECFA says, “An annual audit is an excellent tool for financial accountability, tracking diverse funding sources and organizational goals. Conducted at the end of the fiscal year by a professional accountant, an audit shows funders that you have effectively managed your funding for the previous year and maintained the ability to track, document, and dispense grant monies. It also allows you to see how organizational funds were spent and if the funds spent correlated with your program goals.”

Grant makers routinely request a copy of your most recent Audited Financial Statement. The annual audit fulfills their request. If you do not have one, funders will want to know why and you will likely hurt your chances of receiving funding.

Different degrees of audits

Audits and financial reviews vary according to cost and thoroughness. There are four basic levels of financial review, including the full audit: Full Audit, Review Audit, Compilation With Disclosures, and Compilation Without Disclosures.

The Full Audit usually begins around $5,000. The cost could be higher depending on the size of your ministry or the complexity of the audit. Here an auditor investigates and examines your ministry’s financial statements to ensure that you have adequate error detection and fraud prevention controls.

Full audits verify (sometimes through statistical sampling) that all monies are due to the nonprofit and payable by it. It also thoroughly evaluates the financial well being of the nonprofit. A full audit generally analyzes ratios and offers advice to management. At the end of audit, the audit firm states that it believes “the data presented is fairly stated in accordance with generally accepted accounting principles.”

A Review Audit begins around $2,500. This report is much like a full audit except the audit firm does not investigate or examine the nonprofit. Instead your nonprofit simply responds “to questions for all necessary data.” A review includes a disclaimer indicating that it was up to the nonprofit to provide the necessary information. A review does not analyze business ratios nor does it include a full report to management.

The Compilation With Disclosure starts out at $1,000. The report resembles a review but here the nonprofit provides data and responds to auditor questions. Ratio analysis and a management report are not used in a compilation. A disclaimer indicates that the audit firm examined no data and that it depended on management to supply all information.

The Compilation Without Disclosure begins at $500. It offers roughly the same level of review as an accounting or bookkeeping service would. It includes no investigation, no footnotes, and the nonprofit provides all of the data.

Whatever kind of audit you need, your ministry should find an audit firm that is skilled in nonprofit auditing, up-to-date on accounting standards, and familiar with your area of the nonprofit Christian ministry. It should also provide hands-on support and have an outstanding track record.

Jeffrey J. Rodman is the founder, President, and CEO of Here-4-You Christian Grant Consulting and Church Grant Writing providing consultation for grant writing and funding development nationally and internationally. Mr. Rodman has a Master Degree in Education, is a Certified Fund Raising Executive (CFRE), and is a Certified Grants Specialist (CGS). He is an experienced grant writer, nonprofit executive, and public speaker. Mr. Rodman has written hundreds of proposal to both government and private sources, has secured millions as a consultant, and has an 80% success rate in securing grants.

The Role of the Board of Directors in Financial Accountability

Board financial accounting duties

A nonprofit board is responsible for overseeing the financial accounting process and for establishing an atmosphere that facilitates the success of the process.

In carrying out its financial accounting duties, the board must not intrude into management responsibilities. Its role is to ensure that the ministry’s accounting policies, disclosure of information (needed to show the organization’s financial status), and system of management and internal accounting controls are up to par.

The board should approve the annual budget before the fiscal year starts, ensure that independent auditors are selected and retained, review the annual audit and management letter, and respond appropriately to the management letter.

Management must not intrude into board responsibilities. It must not select or retain the auditors or restrict them in any way. The CEO must not chair the audit review committee.

There are some important, yet often overlooked areas that the board should ensure are adequately addressed in financial accountability practices.

Account for Volunteer Time and In-Kind Contributions

Most funders agree that broad, public support enhances your mission. Accounting practices that track volunteer and in-kind contributions increase public support for your ministry and participation in your operations.

Traditionally nonprofit auditors have used the wage replacement approach to account for the amount of money saved by using volunteers in place of paid employees to carry out organization duties. This approach is misguided. It discounts the value volunteers bring to a nonprofit. For example, this approach cannot calculate the value of a volunteer whose mentoring dissuades a teenager from joining a gang, or whose example deters a 14-year old from becoming pregnant, or whose reading with a child inspires a lifelong love of reading and learning.

As Linda Graff puts it in Best of All: The Quick Guide to Effective Volunteer Involvement, “If you use the wage replacement approach in your program statistics, be clear about what the resulting figure represents, which is not the actual ‘value’ of volunteering, but rather, what the organization has not paid in wages. Describing the outcomes of volunteer efforts and contrasting those against the actual costs of outcome generation is a more promising approach and may very well become the new best practice in volunteer program management in the near future. At minimum, it is more accurate and more respectful.”

State the Fiscal Year in the Bylaws

By listing your fiscal year in your bylaws, you meet funder expectations and you head off any confusion about the timeframe in the future. Your fiscal year does not have to be between January and December. You can designate any 12-month period. An audit conducted outside of the calendar year is, in fact, less expensive.

Use a Master Budget Form

A Master Budget Form is a device for preparing a detailed and itemized budget. Your Master Budget should…

list all expenses
anticipate the funding required for one year of operational programs
include staff salaries, program costs, contracted services, space, travel expenses, and materials
show where funds come from, what in-kind support has been secured, and what funds are still needed
break down expenses to show where funding comes from and what particular expenses are to be paid from what particular funding sources
keep a record of donations and grants received

Include funding columns for donations, in-kind contributions, and unsecured funds. In the unsecured column, list the funds you still need to finish your organization’s project/program. Funders thereby see the resources you have and the projects that have not been funded yet.

Create a second budget to separate your gifts, such as church donations, corporate donations, individual donations. As you benefit from classifying your gifts, your future fundraising campaigns benefit from the feedback this process provides.


Research conducted by the Nonprofit Overhead Cost Project indicates that the accounting information nonprofits receive from their CPAs concerning expense reporting is “incomplete, misleading, and inaccurate.” The researchers say that expense reporting by functional classification and IRS Forms 990 suffer from low public accounting standards. Moreover, accounting practices with respect to capitol gifts and in-kind gifts lead to erroneous conclusions by outsiders.

These problems can adversely affect your ministry’s ability to attract funding and public support. These conclusions suggest that finding an audit firm that is up-to-date on the latest and most effective auditing standards and practices must be a priority of your ministry.

Jeffrey J. Rodman is a Certified Fund Raising Executive (CFRE) and a Certified Grants Specialist (CGS). He is an experienced grantwriter, fundraiser, nonprofit executive, and public speaker who operates Here-4-You Christian Grant Consulting and Church Grant Writing providing consultation for grant writing to Christian ministries and Churches worldwide.

Jeffrey supervises a team of writers, researchers, editors, and administrative staff in providing consultation for grant proposal writing, nonprofit development, and fundraising in almost every state and a dozen foreign countries and has worked on proposals to Federal, State, and Local government as well as to Foundations, Civic groups, and many others.

Jeffrey received his BS and his M.Ed. from George Mason University. He has written 100’s proposals, secured millions of dollars in funding, and maintains a funding rate of nearly 80%. He has successfully managed over 25 different grants as a grant administrator and has also served as a grant reviewer on a state, federal, and local level as well as on foundation review panels. Jeffrey is an experienced speaker and is a Certified National Trainer for programs in Ohio, Indiana, Georgia, Pennsylvania, and Florida.

Jeffrey loves to play games with his kids and enjoy time with his family. Although he grew up in New York, he has lived in Virginia since 1996 where he and his wife, Terri home school their five children, Alexandra (12), Mackenzie (9), Christian (6) Kaitlyn (3), and Abigail (born 02/10/2010).

FBAR: Foreign Bank (and Financial) Account Reporting Rules Expanded With Higher Penalties

The U.S. Treasury issued expanded rules, effective March 28, 2011, requiring U.S. persons to report foreign bank and financial accounts each year. The new rules apply to every U.S. citizen or resident and every entity organized under U.S. law. They must report every foreign account over which he, she, or it has signature authority and every foreign account in which he, she, or it has a financial interest. The reports on Form TD F 90-22.1 must be received by June 30 by the IRS at an address in Detroit, MI. Penalties under the new rules can be the highest balance in the account, up to $25,000 each, and may include criminal penalties (jail time) for willful failures.

Who Must File. The reports must be filed by every U.S. person with a financial interest in or signature authority over a foreign financial account. This includes all citizens and residents of the United States. It also includes all entities formed under the laws of the United States. For this purpose, United States includes the 50 states, District of Columbia, Puerto Rico, the Virgin Islands, and other territories and possessions. The rules require reports by corporations, partnerships, limited liability companies, and other entities, no matter who owns them, if they were formed under U.S. law. In addition, U.S. persons (individuals or entities) that own more than 50% of the vote, value, interest in profits, or capital of any entity with a foreign account must also file, whether the entity is U.S. or foreign.

U.S. persons must report all foreign accounts they own, either separately or jointly. They must report if they are the owner of record, or if another person is the owner of record acting as their agent. In addition, a U.S. person must report an account owned by:

Any corporation in which the person owns over 50% of the vote or value,
Any partnership in which the person owns over 50% of the capital or profits interests,
Any other entity, including an LLC, in which the person owns over 50% of the vote, value, equity, assets, or profits, and
Any trust of which the person is either the grantor or 50% or more income beneficiary.

Example: John and Mary are unrelated. John owns 51% and Mary owns 49% of JM, a Delaware LLC. JM owns 51% of a Clocks GmgH, a German company. Clocks has an operating bank account at a bank in Frankfurt and a brokerage account with a stock broker in Zurich. John and JM must both report each account. Mary can direct the brokerage to make distributions, but can’t sign any checks. Mary must report the brokerage account.

In addition, a person who has signature authority over an account must report the account. Signature authority includes any ability to direct the institution. Example: Fred is a U.S. citizen living in Germany, and is the controller at Clocks. He can sign the Clocks checks, with one co-signer. Fred must report the Frankfurt account.

What Accounts Must Be Reported. Accounts with a foreign branch of any bank, brokerage, or other financial services company must be reported. All of the following must be reported:

Checking accounts
Savings accounts
Brokerage accounts
Mutual funds with regular net asset value determinations
Life insurance policies or annuities with a face value

A few exceptions apply. A bank account maintained on a U.S. military base is not considered foreign. Accounts in Puerto Rico, Virgin Islands or other possessions are not considered foreign. Beneficiaries of IRAs do not themselves report accounts maintained by the IRA.

Examples: Jesus is a resident of Puerto Rico. He does not need to report his Puerto Rico bank account, but must report his account in Haiti.

Betty lives in Idaho. She has a whole life insurance policy with Insur AG, a Swiss insurance company. She must report that policy.

Alice lives in Texas. She owns shares of a German mutual fund held for her benefit in her family attorney’s name. Alice and the attorney must both report the mutual fund.

Account Value. Reporting is required for every U.S. person who has accounts with an aggregate value in excess of $10,000 at any time during the year. The value of each account is determined by translating the face value of the account to U.S. dollars using the rate for the end of the year as published by Treasury. Where no rate is published, an alternative source may be used (but must be explained).

Example: Harry has a bank account in Elbonia denominated in Drakmas. The maximum value of the account during the year was 1,427,000 Drakmas on June 13, 2010, and nearly zero the rest of the year. Treasury did not publish rates for the Drakma, but the Elbonian Gazette listed the rate on June 13 as $1 = 150 Drakmas, and the rate on December 31 as $1 = 130 Drakma. Harry must report the account at a value of $10,977, and attach an explanation to the form about using the Gazette rate.

How To Report. Reports are filed by completing and signing IRS Form TD F 90-22.1. The form may be mailed or delivered to the IRS address in Detroit, on page 7 of the form/instructions. The report must be RECEIVED by the IRS in Detroit by June 30 following the calendar year covered by the report. The accounts must be reported ON THE FORM, not in attachments, Copies of additional pages of the form may be used.

Penalties can be severe. Intentional late filing or non-filing of the report can result in jail time. Other late filing or non-filing can result in penalties up to $25,000 per account not reported.

Summary. U.S. citizens, residents, and entities must report their non-U.S. bank and securities accounts each year by June 30. Reporting is required by a U.S. entity even if it has no activities in the U.S. Persons with signature authority over foreign accounts must report.

International tax issues can be complex, and reporting difficult. For competent planning and compliance help, call Steve Fox.

Computerized Financial Accounting – Methods and Practices – Use of software in Accounting

Complete financial accounting course or tutorial covers a range of following topics. It is being evaluated that how computers have affected traditional accounting methods and practices.

Financial Accounting with Double Entry Bookkeeping
Principles of Accounting
Basic Book of Accounting – Journal
Accounting Ledger
Accounting Sub Journals – Cash Cook
Subsidiary Accounting Books
Accounting Verification by Trial Balance
Banking Transactions Bank Reconciliation Statement
Rectification Of Accounting Errors
Balance Sheet and Profit and Loss Account
Single Entry Bookkeeping Accounting System
Non Profit Organization Accounting
Capital and Revenue
Reserves and Provisions

In a very short span of time, computer has grown from a scientific curiosity to an indispensable tool of modem society. There is hardly any scientific/technical or business activity which is not in one way or the other, affected by modern data processing techniques.

The human mind can handle only a limited number of things at a time. The digital computer, on the other hand, can be programmed to compare, measure, calculate and evaluate thousands of readings in an extremely short period of time.

The computer industry has become the fastest growing industry these days. The sale of mainframe computers is increasing day by day. The computer industry has been further pushed up by the introduction of mini computer and micro computers which are small, cheap, reliable and very light. These are being routinely used for process control, production testing, scientific instrument recording, in store check out systems, in automobile test and evaluating systems, and medical monitoring etc.

Computers are now being used extensively in office administration to perform the routine clerical work. Today, most large and medium sized organizations are almost totally dependent on their computers. Routine uses of computers are given below:

(i) Accounting, Billing, Inventory Control Software with MIS, CRM

Computers are extensively used in accounting and there are multitude of computer software for Accounting, MIS, CRM. HiTech Financial Accounting is one such software which has been customized for users in many segments in business and services.

(ii) Payroll and personnel records.

Payroll accounting was the first commercial area to become widely computerized. The calculation of wages or salaries involves a number of variables which relate to the personal details of each employee, such as gross pay or rate for the job, individual deductions, tax liabilities of the employees and so on. These facts can be retained in the computers and processed every month of produce pay slips for the employees.

(iii) Stock control

The computer helps to exercise the type of stock control needed by the organization. It upto dates the sales and purchases records, determines optimum re-order levels for different items and prints out the stock lists when desired. The system can be so designed that it triggers orders when stock level reaches order point for various material items; tests those item which are slow moving or gives list for over stock items.

(iv) Sale accounts records

Programming can be done for any sales accounting system. The computer will pin point defaulting debtors, determine the right limit for credit for each debtor and maintain stores ledger.

(v) Costing and budgetary control

Costing and budgetary control can be affected through the computer, the computer will point out the variations from the planned performance.

(v) Production control

The computer also helps greatly in production planning and control. It is possible that scheduling of the work may become necessary due to break downs etc. A new critical path may have to be worked out. A critical path is the shortest path to be followed in production to achieve production objectives. The computer helps the management lay down this new critical path.
Advantages and disadvantages of a computer

A computer is surely advantageous because of the high speed of operation and greater accuracy it provides, savings effected by better managerial control, savings in labor because it is fully automatic and finally because of its flexibility in use. However, there is a considerable capital outlay with difficulty of obtaining experienced analysts and programmers, break down and maintenance troubles and finally fear of obsolescence due to rapid development of computers.

Type of other applications in relation to accounting system


It is a software package to help in text processing. Words are processed. Processing includes insertion, deletion changing, moving words, paragraphs etc. Word processing is the preparation of type scripts, using computing facilities for the storage and manipulation of text. For example, word processor has ability to merge name and addresses with standard text so as to give impression that the latter is personalized even in case of circular letter.

HiTech Financial Accounting has got features so that you can export its reports to Microsoft Word, a word processing and Mail Merge Program. You can also write letters to various parties and store the details in the program database.


It is simple collections of information (data) on a particular subject. Data base file allows you to manipulate the data in desired form. So, data base allows us to work on facts and figures to store and manipulate that data in any desired way. For example, from the same basic information trial balance is prepared; trading and profit and loss account may be prepared; list of debtors and creditors may be prepared; purchases and sales forecast may be made and so on. So, an efficient data-base management is needed to provide flexibility in uses of information.
HiTech Financial Accounting uses MS Access and MS SQL server databases for robust database connectivity.


It is one of the software programs which have increased the utility of computer for accounting purposes. Spread sheet programs help you to draw vertical as well as horizontal columns on a large sized paper. Each .column’s length and breadth can be adjusted according to suitability. Even when columns are once drawn subsequently these can be altered, increased or decreased additional columns can be inserted, existing columns can be deleted. It is very useful for businessmen and professionals. It enables us to study multidimensional data at one sheet and helps in arriving at logical decisions. For example, if profit and loss account has been prepared for the year 1989 and you want a comparison with 1987 figures and 1990 forecast then spread sheet shall enable you to provide two additional columns on each side for inserting 1987 actual figures and 1990 forecast estimates.

HiTech Financial Accounting software can export its report data to Microsoft Excel Worksheet which is an advanced spreadsheet application.

A series of articles are proposed to be written on the topics mentioned in this article.

Why Financial Accounting is Important

The ownership and management of business is challenging, and keeping track of finances is one of the most obvious examples of those challenges. The specialized field that handles accounting for business is called financial accounting and provides individuals who are externally linked to that business with information on a company´s financial performance and position. This information is typically given to share or stockholders who want to piece together a value for that company based upon the information they have obtained.

It organizes the transactions of a company by writing down those transactions and creating a financial statement or financial report that summarizes the data in a balance sheet or income statement. These statements are then used by individuals externally to determine the value of a company. If the company is publicly traded, these financial statements will circulate wider, to customers, competitors and employees as well.

Management is given the task of spending business funds to help the business run economically and efficiently. Financial accounting statements can be used to assess management effectiveness by showing the spending of allotted resources and helping to assess whether management should be sent to work in another department or replaced altogether to increase the profitability of the company.

It’s important to note that it provides information to individuals who are trying to determine what a company´s worth is and it does not report that value on its own. These statements are provided to individuals who are external to a company and can circulate broadly, even reaching competitors of that company and other sources.

The FASB, or Financial Accounting Standards Board, is responsible for creating a standardized system of rules called accounting standards for financial accounting in the United States. These standards are important for financial accounting statements because so many people use these statements in so many different ways. These standards are known as generally accepted accounting principles (GAAP). Companies in the U.S. who also trade stock publicly also comply with the Securities and Exchange Commission (SEC).

This is important to stockholders and shareholders who are interested in determining the value of a company they are part owners of. Keeping track of this data helps a company to assess the value of their management and the resources they have allotted them to make their company run better, and financial statements help to determine the effectiveness of management for that company.

Executive level pay is based upon company performance. If the performance of a company is not reported in a proper manner, executives make money that far exceeds what the business is capable of and creates a false picture of a company’s performance. This false reporting causes the stock market to balloon by rewarding stock to companies who do not deserve it, and these methods have a bad effect on our economy. Business accounting that honor the GAAP (Generally Accepted Accounting Practices) creates a transparent persona, an air of trust and respect, from the users of their financial statements. Read more [].

Uma Ilango is a programmer from profession. Has lots of interest in non-technical writing too. She has written articles in several topics. Her hobbies include reading, surfing, writing and playing chess. She writes regularly at []

The Importance Of Financial Accounting In A Latin Country Environment

Financial Accounting, as it is commonly described, focuses on organizing the financial information of an entity into financial statements to help the decision making of people outside the organization, such as stockholders or suppliers, among others. Its objective is to historically record the economic life of an entity so that its operational development can be analyzed and interpreted by third parties. This is the international accepted definition of Financial Accounting, but one thing is its definition, and another very different one how it is applied to different economic environments.

In some countries with non-stable economies, such as the majority of Latin countries, Financial Accounting becomes essential for a company’s survival and is the most important aspect of business decisions. In the country of Colombia, for example, business decisions (supplying, investing, borrowing, lending) are made after analyzing the financial statements of the companies involved. In a country where assets are guarded thoroughly, organizations take extreme precautions before making any decisions that will affect those assets in any way.

Financial Statements become the most important source of information about companies involved in a business deal. Since they are of public use by law, they’re the first documents requested in any type of negotiation. To become a new supplier for another entity, for example, a company would have to present documents such as bank and clients or suppliers recommendation letters, but the most essential ones would be the Balance Sheet and the Income Statement of the fiscal year immediately prior to the date. Without these two documents, the entity would not be accepted as a supplier, even if the recommendation letters show it to be a very profitable and stable organization.

The main reason for financial statements to be so valued in the business environments of these types of economy countries is because they provide a very trustworthy source of information about an entity’s financial performance. It may not be a very different reason for why they are valued in every other economy, but especially in these ones, where investing has so many risks, and where procedures may take double the time of an average international company, resulting in time expenses, it helps make decisions easier.

Having the financial statements ready in time is also a priority of every President or General Manager of a company. Even though they’re not the ones directly involved in the process of elaborating these documents, they have a close supervision of the task. They’re responsible for making sure the Accounting Department is doing its work correctly and with the honesty and ethics required to be able to present accurate and true financial information. In Colombia, Financial Statements need to be signed by the Legal Representative of the company, who in the majority of the cases is the same General Manager or President or CEO; by the Statutory Auditor (or Company Auditor), and by the Comptroller. By signing them, they are confirming that the financial information recorded in the Balance Sheet and in the Income Statement, as well as the explanatory notes, is true and real and hasn’t been tampered with in any way.

Being a country where corruption sometimes messes up the flow of businesses, having the assurance that the financial information of a company is backed up by these three significant signatures, makes it easier to be able to trust an organization when business decisions need to be made. It also helps the company maintain its place in the industry and be recognized as profitable and stable.

Since Financial Statements play such an important role in the decision making of every type of organization, almost every administrative employee understands the basics of financial accounting, and know how to interpret a Balance Sheet. Even if they may not understand what every account means, they are instructed in what a good and acceptable Balance Sheet should look like and the importance of its information, related to their line of work. They also know how an Income Statement and its content is very important when preparing future budgets.

Even though the general importance of Financial Accounting is the same in every country, it plays a very significant and primordial role in Latin economic environments. That is why serious measures are taken to make sure that Financial Statements are done in the most ethical and transparent way, allowing Financial Accounting in non stable economies, to continue being a source of reliability and trust in the process of business decision making.

Top 10 Crests For Managing Financial Accounting

The world is facing difficulties today in balancing the finance. Even a small mistake can hit the sailing of the ship. This growing problem can be stagnated only if, out of the blue a huge wave of finance stuck the market or with the remaining finance, management can be properly insured.

Finance cannot be introduced in the market in the present situation due to the recession, but it can be managed properly. Management of finance is not although an easy job but implying proper guidance it could be made easy. Already the world is facing the recession, not a single country is left which is not engulfed by the daemon called recession but following few tips can still help your business accounts to glide through.

Tips for the Management of Business’ Financial Accounts:

Few tips that can be adopted by the businesses in order to upgrade the financial status in this crucial period can be pointed as:

Accurate Selection of Accounting Software:

Requirements are changing at a very faster rate. In case of managing financial accounting in the business is not possible to bring a rapid growth with the earlier systems that were being used. Up gradation of the software is need for total automation. Newest software can only take care of the business finance, sorting various issues related to employee regarding individual accounts etc.

Selection of the Proper Credit Union:

Capital investment is greatly needed in for the growth and development of any organization. Finding credit union therefore, is a highly needed factor. A credit union is a cooperative financial institution that provides credits at reasonable rates and financial accounting services to its members. So, credit union is required for granting loans to the firms whenever necessary based on their requirements.

Managing the Cash Flow:

Cash flow statements should be very clear to the accountants and also to the higher officials. The monetary amount coming in and going out of the business should be clearly noted so that at the time of revising the financial status accountants will not have any difficulty. One can also indulge mobile payment systems to allow faster and easier payments acceptance.

Maintaining the General Ledger Accounts:

The general ledger shows the bifurcation of debit and credit accounts. The balancing of the accounts can easily be noticed. If the ledger is maintained effectively then ultimately it helps in drawing the annual budget in a correct manner.

Concentrate on Accounts Receivable:

The money that a customer owes to the business in return of the goods and services that has been received by the customer. For the payment purpose an invoice is generated and sent to the customers. Managing these monetary amounts is important to analyze the budget.

Lowering the Accounts Payable:

Accounts payable is the amount that the business owes to the suppliers for the goods or services it has already received. When the invoice received for making the payment, it is kept in the file. On making the payment the invoice is removed from the file. It should be lowered to a certain extent. Because if the debt will increase beyond limit it will directly hit the annual budget and which could be the cause of the demolition of the vast structure.

Calculation of the Capital versus Operational Costs:

The goal often is to lower down the capital costs in order to maintain the budgeting and manage the various costing. Knowledge of depreciation is important and that should be adjusted year to year. Outsourcing this task helps in a better way as it deals with costs so complications might arise maintaining it.

Explore Growth Areas:

It is not possible for a single department to measure everything at a right rate. Accounting management is a vast area to cope up with everything needs huge knowledge and manpower. Outsourcing your service as well as getting the service from other firms becomes more effective as well as it saves your business’ productive time.

Hire Bookkeeper:

While hiring bookkeeper, make sure the person will not exploit the finance of the organization. Bookkeeping is a task where the finance has to be managed by the trusted individual; the whole business finance is revised through the bookkeeping services. Good bookkeeper can show a new direction to draw the business. So the bookkeeping is the most crucial service in accounting management.

Revising the Annual Budget:

It is just to revise various issues like the cost of different products or services, the ledger costing; the trial balance has to be maintained as it contributes a lot to the budgeting of the organization. For the ultimate growth of the business, the various financial tasks, which are to be sorted to maximize the profit rate and minimize the loss.

For the business growth and development from the accounting point of view, proper consultation is always advisable. It can act as a support for the financial growth undoubtedly and can thereby support the industrial growth and development.

The Growing Need of Financial Accountants

The business scenario that we are witnessing at the moment is the most competitive and the most complex that can ever be imagined. Businesses in today’s times are revolving around the financial clouts of the organization and the manner in which it can acquire and further expand its operations as well as domain of expertise. In such times, it is really important that the companies realize that there is an urgent need of people who have the expertise in the management of their finances. The people who have the requisite qualification as well as the experience of handling the finances of an organization no matter how so ever tough and the complex the process might be, are called financial accountants.

Some of the key areas in which there is a requirement of the financial accountants are like maintaining a close watch on the movement of finances within the organization, preparing the financial reports of the company, as well as analyzing them and then presenting a proper and the true picture of the reports to the management as well as the decision makers. It is really important that the upper echelons of the organization are always well informed about the true standing of the company so that they can make informed decisions about the future plans of the company.

Another important role that a financial accountant plays in the overall operations of the organization is to keep a tack on all the important resources that are at the disposal of the company. In addition, it is important that they also make a correct evaluation of the financial resources that are being spent on these resources. Maintaining a close watch on the profits made by the company as well as the losses suffered are also the key roles in an organization.

In many cases it is important that the people working in the organization are also well guided about the importance of the taxes and how they can go about filling their returns. These are just a few important roles that the financial accountant plays in the organization. Apart from these there are myriad of domains in which the financial accountant needs to be active to maintain and aggrandize the financial health of the organization.