Objective And Limitations of Financial Accounting

Financial accounting is a process for identifying, measuring and communicating economic information to users. This is one part of accounting related to recording, classifying, summarizing and presenting daily transactions.

Financial accounting aims to ensure gains and losses incurred over a specified period of time through an income statement. Financial accounting is historical because its use is to record past transactions. Therefore it can be applied in all types of organizations.

Based on the concept of money measurement, accounting principles and standards in finance are generally universally accepted and practiced in order to provide information about the results of business operations and financial position to internal or external parties.

Objective of Financial Accounting

1. To record financial transactions
   The main objective of accounting finance is to record all business financial transactions systematically and scientifically. The need for recording transactions arises because of the limitations of human memory. Under financial accounting, all transactions are recorded in various account books.
2. To disclose operational results
   Another important objective of financial accounting is to disclose the operational results of gains or losses incurred over a period of time. This can be done by preparing the profit and loss statement.
3. Disclose the financial status
   Financial accounting is also useful for disclosing a company's financial condition on a certain date. To that end, the asset and liability statement commonly referred to as the balance sheet is prepared.
4. To provide the required financial information
   Financial accounting aims to provide information to various parties such as investors, creditors, owners and so forth. Usually this information will be available at the end of the accounting period through various financial reports.

Limitations of financial accounting

1. Only reveal the overall result
   Financial accounting reveals the overall business results. It's just that this report fails to reveal the results of every department, process, product, job, and more.
2. Not helpful in price fixation
   Financial accounting does not provide sufficient information for the fixation of sales of products produced or services provided by the business. So unable to prepare the tender or determination.
3. No cost control
   Financial accounting does not classify costs into different categories such as materials, labor and other costs. Cost control procedures can be adopted using standers, but they are not held in financial accounting.
4. There is no cost classification
   Financial accounting does not clarify costs into different categories.
5. Failed to offer a standard system
   Financial accounting fails to measure the level of material efficiency because it can not offer a standard system.

With that in  mind, you probably start considering the use of a robust accounting system because it can give many benefit to your business.