The ability of an individual to keep track of the financial transactions of a business, resulting from its operation over a period of time, is known as his financial accounting skills. This is done by recording, summarizing and presenting all such financial data in the form of financial reports or statements, using standardized guidelines.
Such financial statements usually include balance sheet, income statement, and cash flow statement, which summarize the performance of a company’s operations over a period of time. Financial accounting skills usually do not encompass the ability to report the value of a company but to be able to provide sufficient information for others to assess it themselves.
Why is financial accounting important
Financial accounting is integral to companies of all sizes because it helps in the following:
- Communication of information externally. The statements and reports generated by financial accounting are used to communicate information about the overall health and well-being of the company to the external parties. Such external users may include suppliers, banks and leasing companies etc. who are not part of the company but require all this information to analyze the progress of the company and compare it with their expectations.
- Communicate information internally. A company’s finance team or its employees who are interested in stock-based compensation etc. constitute the internal users of the information generated by financial accounting practices. The reports generated with the help of financial accounting skills are helpful for this purpose as well.
- Comparison through analysis. Since financial accounting requires the use of standardized guidelines, the financial statements generated by all companies are comparable, providing a standard method of analysis.
How to improve financial accounting skills
Following are some of the ways in which you can improve your financial reporting skills in order to be able to prepare and present the company’s financials in a better way:
- Review the statements of peer organizations. One of the best ways to look for any gaps you can fill is to review the financial statements of other organizations in your industry. Observing the industry best practices is the best way to improve your own.
- Focus on the format. Considering it a minor detail, many people tend to be indifferent towards the format of their company’s financial statement. This, however, is wrong because the format has a great impact on the convenience and ease with which these statements are used and consumed. For instance, if most of the organizations are inclined towards using single column balance sheets then it’s preferable that you adopt the same approach for your balance sheet’s format as well.
- Examine the footnotes. You may be required to rework the footnotes on your financial statements in order to ensure their transparency as well as readability. Ensure the use of correct terminology as well as sequence in the footnotes. Make sure that all necessary details are provided in the most appropriate manner.