Financial Accounting

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What is 'Financial Accounting'

Financial accounting is the process of recording, summarizing and reporting the myriad of transactions from a business, so as to provide an accurate picture of its financial position and performance. The primary objective of financial accounting is the preparation of financial statements - including the balance sheet, income statement and cash flow statement - that encapsulates the company's operating performance over a particular period, and financial position at a specific point in time. These statements - which are generally prepared quarterly and annually, and in accordance with Generally Accepted Accounting Principles (GAAP) - are aimed at external parties including investors, creditors, regulators and tax authorities.

BREAKING DOWN 'Financial Accounting'

The key difference between financial and managerial accounting is that financial accounting is aimed at providing information to parties outside the organization, whereas managerial accounting information is aimed at helping managers within the organization make decisions.

Mastery of financial accounting requires years of study and hands-on practice, and is signified by an accounting designation that depends on the jurisdiction. In the United States, the primary accounting designation is Certified Public Accountant (CPA). While in Canada, the main accounting designations are Chartered Accountant (CA), Certified General Accountant (CGA) and Certified Management Accountant (CMA). In the United Kingdom and India, Chartered Accountant (CA) is the primary financial accounting designation.

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RELATED FAQS
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  3. What is the difference between a compiled and a certified financial statement?

    All publicly-traded companies are required to provide financial statements, including a balance sheet, cash flow statement ... Read Answer >>
  4. What does financial accounting focus on?

    Learn the main tenets of financial accounting, the guidelines by which it is governed and how outsiders use it to gauge a ... Read Answer >>
  5. How do investors and lenders benefit from financial accounting?

    Read about the benefits of financial accounting, including access to information and transparency between companies and their ... Read Answer >>
  6. How does financial accounting help decision making?

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