Professional Documents
Culture Documents
2(11)
Jana Kajanová
The contemporary economic theory and practice often discuss the problem of business finances and possibilities of
acquiring and utilizing financial sources, the question of expended costs, expected revenues and accounting as well as the
results of the economic efficiency and mutual relationships among these categories. However, some differences in
interpreting individual basic concepts arise at various levels of confrontation, new ideas, approaches and tendencies.
This paper is aimed to present the problem and basic characteristics of business finances and accounting as well as to
point to their mutual action. Inasmuch as the present period is characterized by a rise and an expansion of the single
market, the comparable and well-grounded information about individual participants of the common market is necessary.
Key words: business finances, accounting, accounting system, harmonization of accounting.
Business finance and accounting is not the same thing. Accounting is concerned with financial record
keeping, the production of periodic reports, statements and analyses, and the dissemination of information to
managers and, to some extent, to investors and the world outside the business. It is also much involved with
the quality, relevance, and timeliness of its information output. Obviously financial decision-makers will rely
heavily on accounting reports and the accounting database generally. Knowledge of past events may be a good
pointer to the future, so reliable information on the past is invaluable. However, the role of the financial
manager is not to provide financial information but to make decisions involving finance. In smaller business,
with narrow portfolios of management skills, the accountant and the financial manager may be the same
person. In the large business the roles are most likely to be discharged by different people or groups of people
[1].
Under the continual pressure of needs of the economic practice the science about business finances has
been permanently developing and achieving remarkable results. From the aspect of the theoretical knowledge
business finances gather information from the microeconomics, they are linked up to the business-economic
science, closely associated with accounting and employing mathematical methods and statistics.
Business finances are the system of monetary relations, into which the corporation on acquiring financial
sources enters, on their placing and binding in individual property components with the aim to exploit
productively the property and to distribute the results achieved.
Monetary relations constituting the content of business finances can be divided from the aspect of their
character, from the viewpoint of subjects among which they are formed and according to the sphere of the
corporate activity, or from other aspects. The division of monetary relations is shown in Table 1.
An inevitable condition of the correct management of business finances is the reliable and early
information. The company can gain it from:
external environment – the so-called boom information,
internal environment, i.e. the information from the corporate information system.
The information sources utilizable in managing business finances are described in Table 2.
VADYBA / MANAGEMENT. 2006 m. Nr. 2(11) 59
information sources
entrepreneurial environment
competitive environment
external
legislation
potential opportunities and threats
calculations
accounting
internal
reporting
statistics
Business finances constitute a dominant part of the whole economics of the company and of its
management. Their presence is manifested in all corporate activities. The management of business finances is
oriented towards the following spheres:
identification and ensuring of financial sources for running the company,
choice of the optimum financial structure,
financial analysis, management of the long-term and current assets,
allocation of financial sources,
distribution of the economic policy,
innovation processes, etc.
Business finances cannot be isolated from other economic disciplines describing and characterizing
various corporate activities. It is therefore natural that if business finances are pursued, for example, in relation
to the microeconomics, macroeconomics, corporate economics, accounting, public finances, financial analysis,
etc., a very narrow connection can be observed between the business finances and accounting. The information
provided just by the accounting is necessary for the correct and valuable decisions. The point in question is
primarily basic accounting statements, which monitor property components of the company, the capital and
financial structure, corporate costs and revenues, economic results, a survey of monetary flows as well as the
further information describing economic operations proceeding in the company.
The three basic financial statements are as follows:
balance sheet,
profit and loss account,
cash flow statement.
These statements provide a very valuable source of information for financial managers who work within
the business and for investors, potential investors, and their advisers. It is likely that managers will have access
to information beyond that which it is made public [1].
uses of cash over the period. It may seem strange that one particular asset (cash) is highlighted in this way
when others, e.g. stock, are not. A firm’s cash flow is the net amount of money it actually receives in a given
period. One of the big problems in starting a new business is that cash flow at the beginning, before the firm
has succeeded in finding customers, is bound to be low. This is why firms need financial capital to start up – so
that they can continue to pay expenses for a while even with little cash flowing in [7].
Most businesses actually produce these statements much more frequently for their own internal,
managerial purposes. The statements are often used for internal purposes as aids to financial planning in that
the data that they contain will be based on plans and forecasts.
Accounting belongs among crucial factors of the functioning of business activity. It is an important
economic discipline mainly from the viewpoint of needs of the financial management [2].
It represents the informational system, which defines, quantifies and evaluates firm’s economic activity.
Many external as well as internal users of accounting information employ this informational source, which
enables one to facilitate through its redeemable ability and accounting statements, the minimalization of risks
associated with performing the business activity or with a course of the managerial and decision-making
processes.
In Charles J. Woelfel´s opinion accounting is the language of business [3]. Each business entity must
know what it is doing and where it is going financially. The accounting system must periodically transfer and
communicate its outputs to interested parties. If they are to be useful, the outputs must mean what informed
users think they mean. Management has the main responsibility to be sure that financial statements of the firm
are reliable and fair.
Nowadays accounting plays an important role in the market economy. It should provide faithful, clear,
precise and complete data about the proprietary and financial situation in the particular enterprise or in the
accounting unit and, and the same time, it should give the well-grounded data for decision-making. Accounting
is, however, also the enterprise discipline, which was developed mainly as an instrument of the enterprise
management. A precondition of the efficient enterprise management is the organization of the suitable and
reliable information system.
Accounting is one of the components of the information system, which is closely associated with the
existence of business and companies as the basic forms of organizing their functioning. The reality of the
contemporary research carried out in the accounting field throughout the world and also in our country has
shown that accounting is not only the practical but also highly theoretical system of knowledge.
Usefulness of information
Materiality
Benefit Costs
Accounting system
In the market economy the accounting system can be divided into several components, which differ one
from another by certain characteristic features, by a validity of the methodology of acquiring data, their
processing and by compiling of the overall surveys. These information subsystems form components of the
accounting system. The accounting system is formed by:
financial accounting,
managerial accounting,
intraorganizational accounting,
tax accounting.
Financial accounting has a legally prescribed content and form, and it is an object of the verifying
activity of auditors. Simultaneously it respects legal regulations for the calculation of the income tax and other
legal norms. The primary function of the financial accounting is the provision of the information, which is
trustworthy and proved. The financial accounting gives a complete set of information about the amount and
structure of the business property, about its sources, costs, revenues, and the economic outcome. In addition to
fundamental data, modern trends of the financial accounting reveal also the information about the competence
of the company to rationally finance its activity, to choose the optimum structure of financing sources and to
optimally allocate these sources into assets. This information has a high value and constitutes a main part of
the content of the financial accounting. The financial accounting information is published at regular time
intervals, once a year. The significance of the accounting lies primarily in the ability to differ and quantify
individual categories of the economic activity of the company (property, fixed assets, equity, costs, and
revenues) as the only economic discipline. It enables one to express a course of the economic activity
comprehensively, completely and continually.
Managerial accounting represents qualitatively a higher form of the inter-organizational accounting. It
forms the subsystem which depicts and examines the economic reality and which is focused on the records,
classification, grouping, analysis and incorporation of acquired information into surveys constituting an
information base employed by executives in making decisions about the controlling activity. The managerial
accounting is oriented to the future and is based on the information provided by the financial accounting,
which demonstrates the truthful reality. It completes the above-mentioned information by facts about the
demanded state. In contrast with the financial accounting the time horizon of submitting the information is
irregular, but it follows the particular conditions and the necessity of executives. It usually represents a shorter
period than the financial accounting.
Managerial accounting interprets and analyses the information obtained from the inter-organizational
accounting, evaluates potential changes affecting the results of the company’s economy, the choice of
alternatives in decision-making processes and projects consequences of the decision into the budget of the
accounting entity. Besides accounting, it also incorporates the budgeting, calculation system, information for
the responsible accounting and the information for decision-making processes in the sphere of investment,
prices, assortment structure, etc.
62 VADYBA / MANAGEMENT. 2006 m. Nr. 2(11)
Financial Managerial
accounting accounting
Accounting is based on the period reporting of financial data. The basic accounting cycle includes:
recording business transactions,
posting debits and credits to a general ledger,
making adjustments to the general ledger,
closing the books,
preparing financial statements.
Harmonization of accounting
In the Slovak Republic, accounting is at present strongly influenced by a dynamically changeable
legislation. It is impossible for this discipline to avoid the around-proceeding changes arising from the
continual development of the entrepreneurial and competitive environment, increasingly expanding
globalization of business, growth of supranational corporations, integration into the European Union, etc.
Current world-wide trends observed in the financial management of enterprises call for certain legislative steps
and changes leading to various discussions about the accounting law or its amendments and regulations.
Modern trends point to the important task of ensuring the approximation and correspondence of the
generally valid accounting rules, statements, principles and procedures applied in various countries in the
world. The approximation should proceed to such a degree that the submitted statements might be
understandable to every adequately educated user. The main objective is to compare data with the sufficient
redeemable power of the final accounts of various companies and also to compile correctly the consolidated
accounts of supranational groups.
Differences in the national accounting principles are economically relevant with regard to the growing
economic globalization. The management overpasses state borders and proceeds on a worldwide scale – it
undergoes the internationalization. The globalization leads to the development of the international financial
management which lays down the new tasks on accounting, especially the requirement for the approximation
of accounting rules and procedures of different countries that can be fulfilled in the form of harmonization
(achievement of comparability) or standardization (unification).
The Slovak Republic as a member state of the European Union (EU) has its legal accounting regulation
in harmony with guidelines of the EU Council regulating the accounting field. In 2002, the EU Parliament and
Council issued a decree No 1606/2002 about the application of international accounting standards, which
claimed the proper implementation of IAS into our legal regulation. From the worldwide aspect the
harmonization of accounting is directed to the international accounting regulation which is based on the
convergence of two principal world theoretical approaches to accounting: IAS/IFRS and US GAAP.
Harmonization of the accounting in all over the world, with a view to provide transparent and
comparable information in the financial statements is one of the leading paradigms of contemporary
accounting. In all countries, it does require a rigid application of the true and fair vies principle [6]. The goal of
the international harmonization of accounting is to achieve the international comparability of two or more
national accounting systems through the adjustment of international accounting directions and thereby to
64 VADYBA / MANAGEMENT. 2006 m. Nr. 2(11)
achieve also their annual financial statements. The greatest benefit that would flow from harmonization would
be the comparability of international financial information. Such comparability would eliminate the current
misunderstanding about the reliability of foreign financial statements and would remove one of the most
important impediments to the flow of international investment. Harmonization would save time and money
that is currently spent to consolidate divergent financial information when more than one set of reports is
required to comply with the different national laws or practice.
The process is directed to the elimination of several differences existing in the access of national
accounting systems to individual items of the annual financial statement. Both harmonizing accounting
systems will approximate each other by their contents, which will enlarge the space for concurrent common
international accounting procedures.
The role of the harmonization is to ensure the international compatibility of information revealing the
financial situation and economic results of entrepreneurial subjects, no matter whether they are individual
enterprises or their organizational and economic groupings.
Conclusions
The success of managing business finances is based essentially on the knowledge of the economic
characteristics and mutual relations ongoing in the company. An integral part of these relations are also
business finances and accounting. Accounting is an inevitable part of the enterprise activities because it gives a
global picture of the course and results of the economic activity, reveals existing problems and provides the
background data for decision-making processes in every enterprise. Business finances are the system of
monetary relations, into which enters the corporation on acquiring financial sources, on their placing and
binding in individual property components with the aim to exploit productively the property and to distribute
the results achieved.
Their mutual interconnection results from the demonstration of financial relations and flows in
accounting and also from the accounting information employed in the field of the management of finances. As
regards the conducting of accounting, outputs and characteristics may be regulated into the form required by
financial managers giving stress on punctuality, accuracy and relevance of the information provided. However,
the correct decisions are linked also with the ability and qualification of the human potential. The ability to
manage business finances successfully belongs to important aspects and competitive advantages of the
contemporary company.
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