Question

Discuss the role of accounting in financial management.

Answer 1

Accounting is an important input in decision making. In other words, accounting is a necessary input into the financial management function.

Financial accounting generates information relating to operations of the organisation. The outcome of accounting is the financial statements such as balance sheet, income statement and the statement of changes in financial position. The information contained in these statements and reports helps the financial managers in gauging the past performance and future directions of the organisation.

Financial Management begins where accounting ends. Statement of Financial Position and Income Statement which are result of accounting process are further used in analysing financials(by way of calculating various ratios such as current ratio, net profit ratio, debt equity ratio, DSCR, etc) and knowing the credit worthiness/profitability of the organisation.