TherelationshipbetweenbusinessfinanceandAccounting

1、the relationship between business finance and accountingvadyba / management. 7><2006 m. nr. 2(11) 58the relationship between business finance and accounting jana kajanová the contemporary economic theory and practice often discuss the problem of business finances and possibilities of acqu

2、iring and utilizing financial sources, the question of expended costs, expected revenues and accounting as well as the results of the economic efficiency and mutual relationships among these categories. however, some differences in interpreting individual basic concepts arise at various levels of co

3、nfrontation, new ideas, approaches and tendencies. this paper is aimed to present the problem and basic characteristics of business finances and accounting as well as to point to their mutual action. inasmuch as the present period is characterized by a rise and an expansion of the single market, the

4、 comparable and well-grounded information about individual participants of the common market is necessary. key words: business finances, accounting, accounting system, harmonization of accounting. business finance and accounting is not the same thing. accounting is concerned with financial record ke

5、eping, the production of periodic reports, statements and analyses, and the dissemination of information to managers and, to some extent, to investors and the world outside the business. it is also much involved with the quality, relevance, and timeliness of its information output. obviously financi

6、al decision-makers will rely heavily on accounting reports and the accounting database generally. knowledge of past events may be a good pointer to the future, so reliable information on the past is invaluable. however, the role of the financial manager is not to provide financial information but to

7、 make decisions involving finance. in smaller business, with narrow portfolios of management skills, the accountant and the financial manager may be the same person. in the large business the roles are most likely to be discharged by different people or groups of people 1.under the continual pressur

8、e of needs of the economic practice the science about business finances has been permanently developing and achieving remarkable results. from the aspect of the theoretical knowledge business finances gather information from the microeconomics, they are linked up to the business-economic science, cl

9、osely associated with accounting and employing mathematical methods and statistics.business finances are the system of monetary relations, into which the corporation on acquiring financial sources enters, on their placing and binding in individual property components with the aim to exploit producti

10、vely the property and to distribute the results achieved. monetary relations constituting the content of business finances can be divided from the aspect of their character, from the viewpoint of subjects among which they are formed and according to the sphere of the corporate activity, or from othe

11、r aspects. the division of monetary relations is shown in table 1. table 1. the division of monetary relations according to character -budget relations, -credit relations, -insurance relations, -realization relations, according to subjects -relations within the company which mediate, as a rule, a ch

12、ange in the form of the property,-relations between the company and other economic subjects, according to sphere of the -relations arising during the acquisition of financial sources, corporate activity -relations associated with the placement of acquired financial sources into individual property c

13、omponents, namely into the long-term movable and immovable property, long-term financial assets (securities, etc.), supplies, receivables and available means of finances. an inevitable condition of the correct management of business finances is the reliable and early information. the company can gai

14、n it from: external environment the so-called boom information, internal environment, i.e. the information from the corporate information system. the information sources utilizable in managing business finances are described in table 2. vadyba / management. <2006 m. nr. 2(11) 59table 2. informati

15、on sources information sources entrepreneurial environment competitive environment externallegislationpotential opportunities and threats calculationsaccountinginternalreportingstatisticsbusiness finances constitute a dominant part of the whole economics of the company and of its management. their p

16、resence is manifested in all corporate activities. the management of business finances is oriented towards the following spheres: identification and ensuring of financial sources for running the company, choice of the optimum financial structure, financial analysis, management of the long-term and c

17、urrent assets, allocation of financial sources, distribution of the economic policy, innovation processes, etc. business finances cannot be isolated from other economic disciplines describing and characterizing various corporate activities. it is therefore natural that if business finances are pursu

18、ed, for example, in relation to the microeconomics, macroeconomics, corporate economics, accounting, public finances, financial analysis, etc., a very narrow connection can be observed between the business finances and accounting. the information provided just by the accounting is necessary for the

19、correct and valuable decisions. the point in question is primarily basic accounting statements, which monitor property components of the company, the capital and financial structure, corporate costs and revenues, economic results, a survey of monetary flows as well as the further information describ

20、ing economic operations proceeding in the company.the three basic financial statements are as follows: balance sheet,profit and loss account, cash flow statement. these statements provide a very valuable source of information for financial managers who work within the business and for investors, pot

21、ential investors, and their advisers. it is likely that managers will have access to information beyond that which it is made public 1. financial accounting statements the balance sheet is a statement of the manner in which the business holds its wealth, how much of its wealth it has in each categor

22、y, how much of the wealth that the business controls is committed to outsiders, and the net wealth of the business. this net wealth obviously belongs to the shareholders. the balance sheet shows the assets, liabilities, and net worth of a particular firm at a particular time. the assets are what the

23、 firm owns, and the liabilities are what it owes. net worth is the difference between assets and liabilities. the profit and loss account is a statement that sets out a summary of the trading events that will have affected the wealth of the business over a particular period, the amount by which each

24、 type of event has affected the wealth, and the resulting net effect on wealth. the statement also goes on to show how any net increase in the businesss wealth over the period has been deployed. wealth in this context is not restricted to cash. it is all the things that have economic value to the bu

25、siness, net of such obligations that it may have to outsiders in respect of any part of its wealth. things that have economic value to the business include, for example, an office building owned by the business and some money owed to it by a customer who has bought some of the businesss output of go

26、ods or services on credit. outside obligations might include an amount owed to a loan stockholder. the profit and loss statement or income statement shows the revenues, expenses (costs), and profit (or net income) for a particular firm for a particular period. the cash flow statement is simply an an

27、alysis of the cash received and paid out by the business during a period. it is arranged in such a way that it will enable readers to derive helpful insights to the sources and vadyba / management. <2006 m. nr. 2(11) 60uses of cash over the period. it may seem strange that one particular asset (c

28、ash) is highlighted in this way when others, e.g. stock, are not. a firms cash flow is the net amount of money it actually receives in a given period. one of the big problems in starting a new business is that cash flow at the beginning, before the firm has succeeded in finding customers, is bound t

29、o be low. this is why firms need financial capital to start up so that they can continue to pay expenses for a while even with little cash flowing in 7. most businesses actually produce these statements much more frequently for their own internal, managerial purposes. the statements are often used f

30、or internal purposes as aids to financial planning in that the data that they contain will be based on plans and forecasts. accounting belongs among crucial factors of the functioning of business activity. it is an important economic discipline mainly from the viewpoint of needs of the financial man

31、agement 2.it represents the informational system, which defines, quantifies and evaluates firms economic activity. many external as well as internal users of accounting information employ this informational source, which enables one to facilitate through its redeemable ability and accounting stateme

32、nts, the minimalization of risks associated with performing the business activity or with a course of the managerial and decision-making processes.in charles j. woelfel?s opinion accounting is the language of business 3. each business entity must know what it is doing and where it is going financial

33、ly. the accounting system must periodically transfer and communicate its outputs to interested parties. if they are to be useful, the outputs must mean what informed users think they mean. management has the main responsibility to be sure that financial statements of the firm are reliable and fair.

34、nowadays accounting plays an important role in the market economy. it should provide faithful, clear, precise and complete data about the proprietary and financial situation in the particular enterprise or in the accounting unit and, and the same time, it should give the well-grounded data for decis

35、ion-making. accounting is, however, also the enterprise discipline, which was developed mainly as an instrument of the enterprise management. a precondition of the efficient enterprise management is the organization of the suitable and reliable information system.accounting is one of the components

36、of the information system, which is closely associated with the existence of business and companies as the basic forms of organizing their functioning. the reality of the contemporary research carried out in the accounting field throughout the world and also in our country has shown that accounting

37、is not only the practical but also highly theoretical system of knowledge. the qualitative requirements for the accounting information the fundamental qualitative requirements for the accounting information from the aspect of users needs include:a)usefulness,b)significance,c)understandability,d)reli

38、ability,e)comparability,f)credibility,g)completeness,h)punctuality.the usefulness of the information is judged from the aspect of its significance and declarative ability. the information is considered significant if its absence has a negative influence on the users decision. the understandability o

39、f the information lies in the possibility to understand its content by a person who has the sufficient knowledge of business and other activities in the company. the comparability of the information is based on the fact that the accounting unit did not change applied accounting methods and accountin

40、g principles during the accounting period. the information is reliable if it gives users a guarantee of credible, complete and early description of the corporate transactions and economic events. adhering to accounting in the respective period, by considering potential risks and losses during the ac

41、counting period, etc, ensures the credible description of facts. the completeness of the information represents recording of all events and economic operations, which relate to the given problem from the factual and temporal point of 6><#00aa00'>view. the punctuality of the information

42、is associated with its usability regarding the given decision-making process, inasmuch as the information delivered too late can be out-of-date from the aspect of its application in making the decision. the hierarchy of qualitative requirements for the information is illustrated in figure 1. vadyba

43、/ management. <2006 m. nr. 2(11) 61usefulnessofinformationmaterialityunderstandabilitycomparabilityreliabilityfaithfulcompletenesstimelinessrepresentationbenefitcostsfig. 1. the hierarchy of qualitative requirements for the information 4 accounting system in the market economy the accounting syst

44、em can be divided into several components, which differ one from another by certain characteristic features, by a validity of the methodology of acquiring data, their processing and by compiling of the overall surveys. these information subsystems form components of the accounting system. the accoun

45、ting system is formed by: financial accounting, managerial accounting, intraorganizational accounting, tax accounting. financial accounting has a legally prescribed content and form, and it is an object of the verifying activity of auditors. simultaneously it respects legal regulations for the calcu

46、lation of the income tax and other legal norms. the primary function of the financial accounting is the provision of the information, which is trustworthy and proved. the financial accounting gives a complete set of information about the amount and structure of the business property, about its sourc

47、es, costs, revenues, and the economic outcome. in addition to fundamental data, modern trends of the financial accounting reveal also the information about the competence of the company to rationally finance its activity, to choose the optimum structure of financing sources and to optimally allocate

48、 these sources into assets. this information has a high value and constitutes a main part of the content of the financial accounting. the financial accounting information is published at regular time intervals, once a year. the significance of the accounting lies primarily in the ability to differ a

49、nd quantify individual categories of the economic activity of the company (property, fixed assets, equity, costs, and revenues) as the only economic discipline. it enables one to express a course of the economic activity comprehensively, completely and continually. managerial accounting represents q

50、ualitatively a higher form of the inter-organizational accounting. it forms the subsystem which depicts and examines the economic reality and which is focused on the records, classification, grouping, analysis and incorporation of acquired information into surveys constituting an information base em

51、ployed by executives in making decisions about the controlling activity. the managerial accounting is oriented to the future and is based on the information provided by the financial accounting, which demonstrates the truthful reality. it completes the above-mentioned information by facts about the

52、demanded state. in contrast with the financial accounting the time horizon of submitting the information is irregular, but it follows the particular conditions and the necessity of executives. it usually represents a shorter period than the financial accounting.managerial accounting interprets and a

53、nalyses the information obtained from the inter-organizational accounting, evaluates potential changes affecting the results of the companys economy, the choice of alternatives in decision-making processes and projects consequences of the decision into the budget of the accounting entity. besides ac

54、counting, it also incorporates the budgeting, calculation system, information for the responsible accounting and the information for decision-making processes in the sphere of investment, prices, assortment structure, etc. vadyba / management. <2006 m. nr. 2(11) 62the basic roles of accounting co

55、nsist of the provision of information: for financial accounting, for common control of costs, about costs, revenues and rentability of outputs, namely for the internal management, price control and formation of prices, about costs and revenues of inter-company units from the aspect of their responsi

56、bility. the intraorganizational accounting, which was denoted in the past also as the cost accounting, operating accounting, internal or analytical accounting, is oriented to phenomena proceeding inside the company. it is not legally defined because the corporate management is completely in the comp

57、etence of top managers. its role is to ensure expended costs and it is the main instrument of the internal management of the company. the information in the intraorganizational accounting serves for the corporate management to investigate factors influencing the positive or negative results of the e

58、conomic activity. the data provided by it are confidential and with respect to their possible misuse they are not accessible to external users. the intraorganizational accounting should provide for the financial accounting: data about the change in the state of supplies produced by the own activity,

59、 data about own costs of the activated own outputs, data about appraising of supplies and other outputs achieved by the own activity, data about the temporal distinction of costs (revenues) and about the formation of reserves. the tax accounting is functioning on equal principles, such as financial

60、accounting, but it respects limitation conditions of the law of income tax for the sphere of costs. the exact wording is incorporated in the law no 595/<2003 in the collection of laws about tax incomes, which follows from alterations and supplements executed by a law no 43/<2004 of the collection of laws, law no 177/<