Financial Accounting


DEFINITION of 'Financial Accounting'

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.


Loading the player...

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.

  1. Cost Accounting

    A type of accounting process that aims to capture a company's ...
  2. Credit Business Associate - CBA

    A designation awarded to those who show mastery in financial ...
  3. Accounting

    The systematic and comprehensive recording of financial transactions ...
  4. Free Cash Flow For The Firm - FCFF

    A measure of financial performance that expresses the net amount ...
  5. Zero-Based Budgeting - ZBB

    A method of budgeting in which all expenses must be justified ...
  6. Activity-Based Budgeting - ABB

    A method of budgeting in which the activities that incur costs ...
Related Articles
  1. Professionals

    Financial Accounting

    Financial accounting is the process of gathering, recording, summarizing and reporting financial data relating to a business. The ultimate goal is to accurately report the financial picture and ...
  2. Retirement

    Footnotes: Early Warning Signs For Investors

    These documents hold very important information, but reading them takes skill.
  3. Bonds & Fixed Income

    Accounting Rules Could Roil The Markets

    FAS 142 is an accounting rule that changes the way companies treat goodwill. Be aware of the impact it has on reported earnings to avoid making bad investment decisions.
  4. Personal Finance

    Top 8 Ways Companies Cook The Books

    Find out more about the fraudulent accounting methods some companies use to fool investors.
  5. Fundamental Analysis

    Understanding Pro-Forma Earnings

    These figures can either shed light on a company's performance or skew it. Find out why.
  6. Investing Basics

    What Are A Stock's "Fundamentals"?

    The investing world loves to talk about fundamentals, but do you know what it means?
  7. Markets

    Using Accounting Analysis To Measure Earnings Quality

    Learn the accounting concepts that will help you to dig into to the details to find earnings manipulation.
  8. Markets

    Introduction To Fundamental Analysis

    Learn this easy-to-understand technique of analyzing a company's financial statements and reports.
  9. Forex Education

    Understanding The Income Statement

    Learn how to use revenue and expenses, among other factors, to break down and analyze a company.
  10. Professionals

    Common Interview Questions for Financial Auditors

    Identify questions commonly asked at financial auditor job interviews, and learn to formulate winning responses that give your candidacy a boost.
  1. What are common concepts and techniques of managerial accounting?

    The common concepts and techniques of managerial accounting are all the concepts and techniques that surround planning and ... Read Full Answer >>
  2. What are common scenarios in which managerial accounting is appropriate?

    Common scenarios in which managerial accounting is appropriate are any situations in which a company competes in a fast-paced ... Read Full Answer >>
  3. What is the difference between managerial accounting and financial accounting?

    In simple terms, managerial accounting exists to help managers make internal decisions that affect an organization, whereas ... Read Full Answer >>
  4. What is the justification for allowing deferred tax liabilities?

    A deferred tax liability tracks the temporary difference that arises between a company's income taxes that will be due in ... Read Full Answer >>
  5. How does financial accounting help decision making?

    There are three main areas where financial accounting helps decision making. It provides investors a baseline of analysis ... Read Full Answer >>
  6. How do investors and lenders benefit from financial accounting?

    Investors and lenders rely on financial accounting to obtain critical information about the financial health and risks of ... Read Full Answer >>
  7. How is an accrued interest entry made in accounting?

    In financial accounting, accrued interest is reported by borrowers and lenders. Borrowers list accrued interest as an expense ... Read Full Answer >>
  8. What are the objectives of financial accounting?

    Financial accounting is the process by which an organization's transactions are collected, measured, recorded and presented. ... Read Full Answer >>
  9. What does financial accounting focus on?

    The focus of financial accounting is on summarizing and reporting a business's financial position to entities outside the ... Read Full Answer >>
  10. Given a good bookkeeping system, would financial accounting be necessary?

    Bookkeeping and financial accounting may seem like they are new creations, but variations have been around for millennia. ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Bar Chart

    A style of chart used by some technical analysts, on which, as illustrated below, the top of the vertical line indicates ...
  2. Bullish Engulfing Pattern

    A chart pattern that forms when a small black candlestick is followed by a large white candlestick that completely eclipses ...
  3. Cyber Monday

    An expression used in online retailing to describe the Monday following U.S. Thanksgiving weekend. Cyber Monday is generally ...
  4. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  5. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
Trading Center