Scope of Financial Accounting

 Financial accounting is a branch of accounting that deals with the recording, summarizing, and reporting of financial transactions of an organization. Its scope includes:

1. Reporting performance and position:

Reporting the performance of an organization  as well as the state of the organization are the primary purposes. This can be seen through alternate names for the incomes statement and balance that were mooted for them namely the statement of financial performance and the statement of financial position.

2. Reporting to shareholders:

Public traded companies accounts are relied on by more than direct shareholders. As a result of being publicly sold the scope of financial accounting information provided by these companies must also include the needs of potential investors to enable them to determine if they desire to invest in these companies. his he why publicly traded companies are required to publish their financial statement and make them the publicly available.

3. Reporting to creditors:

Creditor are businesses or individuals that ordinarily do business with a company and extend credit to them. Extending credit has the risk of default through liquidity challenges or insolvency and it is very important for them to know how well companies are doing.

4. Reporting to customers:

Business has evolved and so have the relationships that companies have with their different external stakeholders. One important group that has a big influence on the scope of financial accounting are the customers of a business. The financial statement and financial accounting information have grown in scope to encompass these and other issues in order for the statements to continue to satisfy the need of customers.

5. Reporting to employees: 

Management does not direct report to employees per say. however employees are vital part of the system of a business. What is important to employees job security through the continued viability of a business. In organized  labour  unions and trade associations look after the welfare of employees through the relationship they maintain with the employees.

6. Reporting to Government:

Governments are of course interested in the activities of business operating within their jurisdiction. The obvious example of this is a earning information for tax purpose as government rely on tax revenue. The government uses information in the process of gathering statistics on employment. Other taxes such as value Added tax (VAT) also fall under the scope of financial accounting information.

7. Reporting to communities:

Businesses, both large and small operate in communities We could go a state further and say they are part of communities. As this view of businesses grows the combination of Government and communities pressure has mandated that the scope of financial accounting when it comes to the se businesses be expanded to include there impact and efforts in the community. Their work in and with the community is now importance.