Financial accounting is one of the business roots that determine its ability to hold on the continuity principle ( Needles and Crosson, 2013) . It involves summarizing of financial transactions that occur on daily operations and reporting them in the recognized financial statements like profit and loss, balance sheet, and cash flows( Needles and Crosson, 2013). Keeping financial records is a primary requirement for all firms associated with profit making ( Needles and Crosson, 2013) . That is because managers communicate to other stakeholders through the financial statements. Indeed, a real decision made by entrepreneurs rely on the information gained from the accounting records ( Needles and Crosson, 2013) . Therefore, both small and big organizations depend on financial data to measure the risk of being in the competitive environment of business ( Needles and Crosson, 2013) .
With the help of financial accounting processes, it is possible to control all the business finances. That requires an individual to have a good understanding of the accounting principles and standards as registered in the accounting laws ( Needles and Crosson, 2013) . Financial management becomes easy when recording is done in time, and accountants handle the computations accurately ( Needles and Crosson, 2013) . Timely financial statements are more beneficial to the external stakeholders since they get time to evaluate the investment progress and make timely information ( Needles and Crosson, 2013) . Therefore, financial reporting cannot be separated with reliability if growth remains the company’s objective.
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Financial frauds and theft in the organization are increasing every day due to the new technologies used to manage money. As a result, financial accounting may help in controlling as well as reducing the risk of losing a huge amount of cash that will affect the business progress. Prudence is what investors look at for them to risk their money in any given company ( Rodgers and McFarlin, 2017) . If biasedness is detected in the accounting information released by the managing team, investors are more likely to withdraw their financial support. Financial reporting is made easy to interpret and understand presenting a clear picture of the business performance to prevent such scenarios.
Managing business finances requires that given authority to link financial accounting with other accounting branches like managerial accounting. Reason being, the firm has two types of stakeholders namely internal and external stakeholders. For the internal body, they require the managerial accounting to make their decisions ( Weil and Francis, 2013) . However, they still need financial information to formulate a budget that does not exceed the company financial power. Hence, managers use the data to compute ratio analysis to assess the cash and profit position of the business. They may also use the ratios to perform a comparison of between the current and previous profitability levels.
External stakeholders are also heavy dependents of financial accounting through the information presented on the balance sheet at the end of every fiscal year. Creditors and investors dwell on financial data to calculate the credibility of the business before investing their money. Therefore, a business must have a sound financial health to grab the interest of financiers. On the other hand tax, authorities use the financial accounting information to claim the returns of any business set-up in the country. Without the information, it would be hard for them to determine what amount an organization is liable to pay every financial period ( Weil and Francis, 2013) .
Customers cannot be denied access to the statements since they prove to them that the business is in a position to supply needed commodity or services in time without failure. Last but not least, financial accounting acts as a monitor for the regulatory authorities in ensuring that all accounting standards are followed to the letter.
A perfect example of a company whose stakeholders have used financial accounting to make decisions is Nokia. Despite the fact that it was the most profitable mobile phone company in the world between 1998 and 2012, it stands out to be a disappointment to investors in 2016. The company financial statements reported a loss of $766 million which was a significant threat to its performance. As a result, shareholders began to sell their shares having no future hopes with the company. Stakeholders could not hesitate to make a decision regarding the way forward since the company was on its way to failure. Among the decisions made, the board of directors agreed to sell the handset manufacturing section to Microsoft. That would enable them to concentrate on the Nokia network alone. Primarily, due to the increase in shares withdrawal by investors, the company was not in a position to handle both the handset department as well as the network segment. The case of Nokia is a good example of how financial accounting affects the decision-making process. Every company must act within thely Accepted Accounting Principles (GAAP) regardless of whether it makes a loss. That ensures that all investors are protected from inaccuracy and frauds when making financial decisions.
Accepted Accounting Principal contributes to the financial accounting process in a bigger way apart from protecting the investors. Just like the name suggests, they are standard rules used within a region or a country to ensure uniformity in all the accounting information presented by different companies. These rules define all the transactions legible to be recorded as a financial transaction. Examples of recognized items include revenues, liabilities as well as expenses. In the case of United States of America, the rules also dictate the amount that should be reported in the financial statements for each item ( Florou and Pope, 2017) . The accounting principles help accountants to present their reports in a way that users understand. There are formats developed to present every financial statement such as the balance sheet and the trial balance. The GAAP rules have maintained the discipline of full disclosure of material information in the financial statements by financial experts. According to the accounting laws, all the information that cannot be quantified in monetary terms must be recorded in the declarations of notes. The information may appear to be important during the decision making process.
Ultimately, for financial accounting process to be of significance to stakeholders, it requires a regulatory board that formulates and implements accounting rules. In U.S.A, the Financial Accounting Standard Board (FASB) is the body in charge of overseeing that accountants follow the correct guidelines. They also ensure that learning institutions teach a similar content to avoid confusion in the job market. As a result, application of the GAAP rules in financial accounting has helped many companies gain credibility even from foreign investors. That is because of easy comparison of the financial statements that are similar. Since a business life depends directly on the financial accounting trend, shareholders should ensure that decisions made aims at growth and development of the firm in future. Success should be the ultimate result of a business whose financial statements are encouraging.
References
Florou, A., Kosi, U., & Pope, P. F. (2017). Are international accounting standards more credit relevant than domestic standards? Accounting and Business Research , 47 (1), 1-29.
Needles, B. E., Powers, M., & Crosson, S. V. (2013). Principles of accounting . Cengage Learning.
Rodgers, W., & McFarlin, T. G. (2017). Understanding the Decision-Making Process for Personal Investments. In Decision Making for Personal Investment (pp. 11-15). Springer International Publishing.
Weil, R. L., Schipper, K., & Francis, J. (2013). Financial accounting: an introduction to concepts, methods, and uses . Cengage Learning.
