How and why are regular accounting data modified for use in financial
QUESTION
How and why are regular accounting data modified for use in financial management?
Financial management is mainly concerned with decision making. In decision making cash flows are considered to evaluate the feasibility and profitability associated with any decision. Cash flows give the true and real picture about the projects. Accounting data gives the profit and other figures based on accounting rules of revenue recognition and accrual. This means even those transactions which do not involve cash payments or receipts are recorded in the books¦
f accounts. So, the accounting data is modified to calculate cash flows. This is done by removing all the non-cash transactions from the accounting data like depreciation and amortization amounts. Also, some policies and rules of accounting must be modified to suit the requirements of the financial manager.
ANSWER:
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