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What is the importance of financial accounting?

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Quick Answer

Financial accounting is important because it provides an organization's stakeholders with business statements, allowing them to know if the organization is making or losing money. This information is essential in determining if a company is able to maintain profitability, according to Accounting-Careers-Guide.com.

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What is the importance of financial accounting?
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Full Answer

Accounting Coach describes financial accounting as a specialized branch of accounting responsible for tracking an organization's financial transactions. This includes recording, summarizing and presenting financial reports or statements using standardized guidelines. Companies issue such reports on a regular basis and provide them to owners, stockholders and lenders. These reports include substantive information that allows recipients to assess the value of the company. In the United States, publicly traded corporations are required to follow the requirements established by the Security and Exchange Commission in presenting their reports.

The Security and Exchange Commission, a federal agency, designates that the independent Financial Accounting Standards Board determines the rules of accounting, known as the generally accepted accounting principles, or GAAP, according to Reference.com. While the FASB is not a government agency, the SEC uses its statutory power to adopt the GAAP for organizations. By design, the FASB is independent of other business and professional organizations, providing an objective structure to modify the GAAP as necessary.

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