Financial Management - An Overview

Financial management is the process of planning, controlling and evaluating financial decisions. The assumed goal is the maximisation of shareholder wealth in for-profit organisations and deliver nominated services in a not-for-profit. Business organisations are defined as sole properietorship, partnership, companies (public and proprietary) and can be distinguished by their liability, limited, unlimited and, in the case of mining companies, no liability.

The internal structure of an organisation is typically distinguished btween the strategic planning function and operations. The specific functions involved in daily operations include purchasing, accounts payable, accounts receivable, salary and wages. The preparation of strategic functions is defined by the budget.

The principle function of financial accounting is to prepare general-purpose financial reports that summarise the performance of an organisation over a period of time. These reports show the profit or loss, the changes in equity, the nature and value of assets and liabilities and the way the way which funds were obtained and used during the year. Regulatory processes for reporting, justified by public interest (to protect the public) and questioned by capture theory (regulative processes are captured by the people who are most regulated).

The principle function of management accounting is to help managers make sound financial judgments by providing them with reliable information concerning the organisation's performance. The main areas are cost accounting, budgeting and performance measurement.