Managing the finances of the firm in an efficient manner is the most important aspect of managing a business. It means controlling and managing the firm's financial resources. The process of managing finances involves cash flow management which is concerned with the inflow and outflow of money in and out of a business. For this a cash flow statement is prepared which records a company's income and expenses in a systematic form. Cash flow statement is a financial tool used by the companies to measure its cash receipts and disbursements over a period of time. It lists cash to and cash from operating,investing and financing activities along with the net increase or decrease in cash for the period.
For proper management of a company's finances, the knowledge of accountancy, particularly the principles of double entry book keeping is an essential requirement. Accountancy tells us how to prepare and maintain the various accounts of a company and how to communicate such accounting information to the concerned parties. A 'general ledger account' is the most important account prepared by a company. It records all the financial transactions of the company by means of two entries called debit and credit. Besides, every company is statutorily required under the Companies Act, 1956 to keep and maintain books of accounts. Such books are necessary because they give a true and fair view of the state of affairs of the company. For auditing these books of accounts, it is mandatory for the companies (under the Act) to provide for compulsory appointment of an independent person as the 'auditor' of the company. It is the duty of the auditor to check the arithmetical accuracy of books of accounts and submit its report on the accounting standards and goodwill of the company.
This whole process of financial management gives the true financial position of the company. A good financial standing of a company so indicated reinforces its credit worthiness and competitive position in the market. It is thus essential for smooth and successful functioning of the enterprise in a profitable manner on a long term basis.