Financial Accounting
It is very important for any business to insure that the financial statements of the business are produced timely and must be reliable. It is assumed in the financial markets that if the financial statements are prepared on the basis of accounting standards and the financial statements are approved by the auditor, then, the financial statements are reliable. The reliable financial statements are the most important element, for the management and the current shareholders. If the statements are reliable and authorized by the auditor, then, it is highly probable that the current shareholder will reinvest into the business. (Lempert, 2014)
Another advantage of the reliable statements is that the suppliers of the business start to trust in the business and allow extended credit period. Similarly, if the business is in cash problems, then the creditors will not allow credit sales and search for other clients. Competitors can use financial statements to improve their own financial performance. Reliable financial statements have the salary and the bonus allotted to the directors of the company. This disclosure tells the shareholders and the lower staff regarding the funds enjoyed by the directors. (Credit-to-cash-advisor.com, 2014)
Comparability of the financial statement is very important for the shareholders and the potential investors. If the financial statements are prepared and presented in a defined way, then, it becomes easy for the shareholder to analyze and compare the financial statements of different businesses. Moreover, the management of the business can also use the financial statements of their competitors to access and compare the performance of their business. (Accounting-simplified.com, 2014)
Similarly, the new investors can compare the financial statements of different companies and make investment decisions on the basis of their financial performances and future financial growth. However, it is very important to compare the businesses according to their industry. For example, the investors must compare insurance company statements with another insurance company to obtain the best results. (Fasri.net, 2011)
The financial statements of the business must be prepared clearly and according to the accounting standards, so that it becomes understandable for all the stakeholders of the business. The understandability of the financial statements refers to the clarity and simplicity of the financial statements. The financial statements must be presented with the clear headings and must be readable for their users. (Financialexecutives.org, 2014)
There are two major differences between the profit and non-profit organizations. The first difference is that when the management of the business, start their operations, they disclosed the purpose of the business. If the purpose of the business is to generate profits for the personal or shareholder’s gain, then it is called profit oriented organization. However, in the case of nonprofit organization, the purpose of business is to perform for the betterment of the society. All the earnings of the non-profit organization are spending on the society or community for their ‘greater good’. Non-profit organization can grand their profits to another non-profit organization. (Fritz, 2014)
The second difference between profit and non-profit organization is that at the time of liquidation, the assets of the profit oriented organization, distribute between the shareholders of the company according to their shareholding. However, in case of non-profit organization, the assets are given to another non-profit organization to insure the continuity of the business. (Fritz, 2014)
The performance of the non-profit organizations can be measured on the basis of funds collected from the general public to spend on the community. If the non-profit organization is collecting enough amount of money from the general public, then, it is assumed that the organization is working effectively and the general public is trusting in the services of the non-profit organization. Another way of measuring the performance of the organization is to analyze the growth in the number of members of the organization. However, the most important way of measuring the performance of the non-profit organization is to check, if the organization is achieving their targeted goals in the given time frame. If the organization is achieving their goals, then, the organization is performing well. (Mckinsey.com, 2014)
References
Accounting-simplified.com, (2014). Comparability of Financial Statements explained with
example. [online] Available at: http://accounting-simplified.com/financial-accounting/accounting-concepts-and-principles/comparability.html [Accessed 23 Apr. 2014].
Fasri.net, (2011). Financial Accounting Standards Research Initiative » Blog Archive » What is
Financial Statement Comparability?. [online] Available at: http://www.fasri.net/index.php/2011/06/what-is-financial-statement-comparability/ [Accessed 23 Apr. 2014].
Financialexecutives.org, (2014). Financial Executive: January 2012 - FEI. [online] Available at:
http://www.financialexecutives.org/KenticoCMS/Financial-Executive-Magazine/2012_01/Making-Financial-Reports-More-Effective-and-Useful.aspx#axzz2zfV0brqw [Accessed 23 Apr. 2014].
Accountingexplained.com, (2014). Concept of Understandability of Financial Statements |
Examples. [online] Available at: http://accountingexplained.com/financial/principles/understandability [Accessed 23 Apr. 2014].
Fritz, J. (2014). What's Different About a Nonprofit?. [online] About.com Nonprofit Charitable
Orgs. Available at: http://nonprofit.about.com/od/qathebasics/f/nopvspro.htm [Accessed 23 Apr. 2014].
Mckinsey.com, (2014). Measuring what matters in nonprofits. [online] Available at:
http://www.mckinsey.com/insights/social_sector/measuring_what_matters_in_nonprofits [Accessed 23 Apr. 2014]
Lempert, J. (2014). Why reliable financial statements are critical for business growth and
success - 02/12/2013. [online] Mnp.ca. Available at: http://www.mnp.ca/en/media-centre/blog/2013/12/2/why-reliable-financial-statements-are-critical-for-business-growth-and-success [Accessed 23 Apr. 2014].
Credit-to-cash-advisor.com, (2014). Reliability of Financial Statements on U.S. Firms- Credit-to
Cash Advisor e-Newsletter. [online] Available at: http://www.credit-to-cash-advisor.com/Articles/CreditManagement/ReliabilityofFinancialStatements [Accessed 23 Apr. 2014].
