Corporate financial accounting is the process of recording and reporting the financial transactions found within a firm. Processes include the tracking of accounts receivable and accounts payable, forecasting cash flows, general ledger accounting, developing and implementing internal controls, and preparing financial statements. Corporate financial accounting is heavily used by publicly held companies and other large organizations. The accounting offices in these firms often include departments that focus on one or more issues. This separation of duties helps reduce the problems associated with embezzlement and fraud often found in the corporate environment.
The modern business environment greatly leverages technology in corporate financial accounting. Many organizations will implement large-scale recording and reporting systems to help increase the calculation time of standard accounting practices. These systems also allow for synergy with outside companies. The company can gather information quickly and easily through the computerized processes. This often aids those individuals working in the company’s accounts receivable and accounts payable departments. These accountants can transfer information back and forth as necessary, simply reviewing and imputing the information rather than spending copious amounts of time gathering information manually.
The purpose of corporate financial accounting is to report all financial information for the use of internal and external stakeholders. Most companies use accounting to keep score, tracking the profit made at certain expenditures levels and reviewing them on a historical basis. Accountants within the firm work under specific time constraints, called accounting periods. Many companies follow monthly accounting periods, along with quarterly and annual periods. All information recorded under traditional financial accounting must follow the standard national accounting guidelines that govern financial information.
Publicly held companies use corporate financial accounting to produce financial statements that help the firm gain investment from outside individuals and organizations. These statements indicate the profit generated from specific expenditures, wealth generated from owning assets and borrowing money and the movement of cash from different transactions made by the firm. The information contained in the statements is a reflection of all activity from the company. Owners and managers will also make forward-looking statements based on this information. These management statements provide investors with the expected direction of the company’s future sales, whether increasing or decreasing based on historical information.
Where corporate financial accounting serves the need for meeting external users, another form of accounting, known as management accounting, is more useful to corporate insiders. Management accounting is only for internal use and helps managers make decisions. Reports generated from management accounting do not follow national accounting standards. Owners and managers can have corporate accountants manipulate financial information in a manner that suits the upcoming decision.
