What is financial accounting?


Quick Answer

Financial accounting is the accounting branch that deals with the financial transactions of a company. Through financial accounting all of the financial dealings of a company are recorded, from income to expenses. Then they are summarized in preparation for internal or external publication in a series of reports.

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Full Answer

Financial accounting is used to aid a company's managers in their decision making. By keeping track of all transactions, financial accounting allows the creation of reports such as balance sheets, statements of cash flows, statements of the equity of stockholders, and income statements. These reports in turn allow viewers to review the state of the company at the time of the creation of the report. All transactions are recorded using a process known as double-entry bookkeeping, which means that each transaction affects two separate company accounts.

For internal use, the reports created through financial accounting help in the development of budgets, to determine areas of profit or pinpoint loss leaders among products or services produced. When the reports are made public, they assist those looking into the strengths and weaknesses of a company, which aids them in making investment decisions.

Financial accounting follows a set of established rules known as generally accepted accounting principles, to ensure that presentation of information is standard between organizations. These principles are established by an organization known as the Financial Accounting Standards Board.

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