Topic 3.3 · Accounting and Financial Management

Accounting and Financial Management

Why businesses and consumers track financial data, GAAP disclosure, and the roles of managerial accountants, financial accountants and finance departments.

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Learning objectives

3.3.AExplain why businesses and consumers track and evaluate financial data.
3.3.BDescribe the roles of accounting and finance departments in the preparation, reporting, and use of financial information.

Objective statements © College Board, quoted from the Course and Exam Description.

Every business transaction, such as buying resources, getting paid by customers, distributing profits, saving or borrowing, changes the business's assets, liabilities and owners' equity (the business's value to its owners). Consumers' transactions likewise change their assets, liabilities and net worth.

Why track it?

Businesses record every transaction and summarize it in financial statements, which they use to:

Monitor financial health
Guide decisions
Give accurate information to shareholders, investors and lenders
Comply with laws and reporting rules

GAAP requires corporations that sell shares to the public to consistently disclose all positive and negative financial information every reporting period, typically quarterly or annually.

Consumers usually aren't required to report their finances, but an organized system such as a budget helps them stay on track toward their goals.

Who does what

Role	Main audience	What they do
Accounting department	—	Identifies and records all transactions; prepares financial statements

Key terms

Owners' equity: The value of a business to its owners: assets minus liabilities.
Financial statement: A report summarizing financial performance or position, such as the income statement, balance sheet or cash flow statement.
GAAP: Generally accepted accounting principles. They require publicly traded corporations to consistently disclose positive and negative financial information each period (quarterly or annually).
Managerial accountant: Provides financial analysis to internal stakeholders (managers) for planning and decisions.
Financial accountant: Provides financial information mainly to external stakeholders: shareholders, investors and lenders.
Finance department: Analyzes accounting data and recommends strategies to maintain or improve financial performance.

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