Financial

Financial accounting

Financial accounting

This is one of the field in accounting that is concerned in the reporting of transactions in financial accounting, the summary and analysis of transactions which is involve in business. In financial accounting, the financial statement which is presented to the company is prepared. People like suppliers, stockholders, employees, banks, business owners, stakeholders and government agencies use the information which is provided by the finance accountant for the purpose of making decisions.

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Both the international and local accounting standards govern the financial accountancy. GAAP meaning Generally Accepted Accounting Principles gives a standard guideline for the use of financial accounting in any jurisdiction available.

Financial accounting

The work of finance accounting

  • For reporting financial transactions
  • For transaction and company analysis
  • Provision of financial information

Qualities of finance accounting

Financial accounting is for the purpose of making financial statements to public for the decision making of the company.

  • If the omission or misstatements in the information provided by the financial accounting could cause any influence in the decisions of the economy by taken by the user of the financial accounting, it shows that financial accounting has the quality of materiality.
  • Unless the quality of relevancy is present in financial accounting, the financial information will not be able to influence the decisions of the company as it is financial specific
  • In a good financial information by financial accountant must be error free as the financial accounting information must be reliable so that the company will be able to make a useful decision. One of the quality of financial accounting is reliability because it must be very easy to be relied upon by the public but immediately is full of error, the financial information has loose its reliability quality.
  • The financial analysis and report given by the financial accounting must be understandable by the public. It must be clearly analysed, reported and written to avoid confusion in the reading of the financial information. Any one whom the information is concerned should be able to understand without requiring any further explanation on the information.
  • Comparability in financial accounting is very important in the sense that the different periods of financial reporting, they, must be different and very easy to be compared with one another. This is useful in deriving a meaning conclusion about how the performance of the company or agency is trending.

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Finance accounting objectives

  • Provision of certainty in the position of finance of a business: Business personnel does not only want to know what the result of the business is, maybe in terms of loss or profit in particular time but he also wants to know his liabilities are and his own assets at a particular period of time. The businessman does not know this unless a financial accounting makes the preparation of financial statement or information showing the position of the company’s liabilities and assets and this helps in providing certainty about the position of the business finance.
  • Provision of information to public for the purpose of making decision: Financial accounting has its objective as to provide useful information through financial results communication for the purpose of making decisions by the users. This user can be the stockholders, bondholders, shareholders and company managers. The aim of accounting is to get the users make good decision about the company through the financial information it provides.
  • Provision of certainty of results for above recorded transactions: To know the business operation results, the profit and loss account is prepared by the financial accounting. The business is said to be run under loss if the liability is more than the asset or the output of the company is more than the company input. This profit and loss account prepared by the financial accountant helps the users to be able to take a rational and reasonable decisions on the running of the business and how to recover if there is any loss in the company.

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  • For the purpose of knowing the position of solvency: Balance sheet is prepared not just for anything by the financial accountant but to show the information which is concerned in the ability to get the liabilities meet up in the short run which is the position of liquidity and also the position of solvency in the long run.
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Harish Yadav

Finance and market analyst and chief writer on howtofinance. Passionate to read books and articles on marketing and accounting. Also edits other articles and publish them here.

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