What is Financial Accounting?

Financial accounting is preparing financial statements that report a business’s financial performance and position. This accounting stream’s main goal is to appropriately depict a company’s overall performance. Additionally, this information is vital information for other parties. Accounting documents, for instance, are essential to creditors, financial institutions, lenders, investors, the government, and tax authorities.

Balance sheets, income statements, cash flow statements, and change statements in equity are all examples of financial statements. These statements provide information about a business’s assets, liabilities, revenues, expenses, and net income, as well as its cash flows and changes in equity.

Financial accounting is based on the principles of double-entry accounting, which requires that every financial transaction be recorded in at least two accounts, with equal and opposite entries. This ensures that the financial statements accurately reflect the financial position and performance of the business.

Financial accounting is an important tool for stakeholders such as investors, creditors, and regulators, as it provides them with information about the financial health and performance of a business. Financial accounting also helps management to make informed business decisions by providing a comprehensive and objective view of the business’s financial situation.

Few of the aspects and concepts of financial accounting include bookkeeping, asset/liability classification, and analysis of financial transactions. A company’s financial health and profitability are assessed.

Numerous important decisions are taken on the basis of the information collected and analysed. Managers, shareholders, creditors, lenders, and investors all make appropriate use of the data.

In the US, Generally Accepted Accounting Principles (GAAP) govern and regulate financial accounting as it is one of the most important aspects of running an enterprise or firm.