okay so in our previous video we talked
about bookkeeping and why it is important here we’ll focus on financial
accounting the set of financial reports that a company prepares for people that
are outside the organization such reports enable outsiders to gain an
understanding of the company’s business about how many sales the company made
this year about how many sales the company had last year and they also show
how profitable the company’s business was and what kind of costs it sustained
in addition to that financial accounting reports show what a company owns and
what it owes they show how much cash was available in the company’s bank accounts
at the time of preparation of the report and so on we can conclude that financial
accounting allows people who are outside an organization to make a reasonable
judgment about its business and why is this important why should a company go
through all the trouble in order to prepare such reports think about the
opposite situation what if the company did not provide financial information
what would have been different in that case is there a bank that would be
willing to lend money without knowing how you are going to repay the loan is
there an investor who would be willing to put up their money without knowing
anything about the financials of the company’s business the answer is no and
that’s why companies prepare their financial reports it enables them to
communicate their financial performance to those who are interested think about
General Electric it’s a huge company right in 2014 their revenues were north
of 148 billion dollars and being a public company they have thousands of
investors who are located not only in the United States but all over the world
their investors are in France Germany UK Japan everywhere
and how is it that they monitor the company’s business and decide whether
they would like to hold their shares or sell they use the company’s financial
reports they analyze the company’s financial statements and all of the
details that are necessary in order to understand the company’s business I’m
sure that you understand just how crucial role financial accounting plays
in today’s financial system without financial reporting as we know it most
businesses would have been denied the capital that they need