Financial Accounting

Loading the player...

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.

RELATED TERMS
  1. Accounting

    The systematic and comprehensive recording of financial transactions ...
  2. Accountant

    A professional who performs accounting functions such as audits ...
  3. Account Statement

    A periodic summary of account activity with a beginning date ...
  4. Chartered Accountant - CA

    An accounting designation given to accounting professionals in ...
  5. Accounting Event

    A transaction or change recognized on the financial statements ...
  6. Certified Financial Statement

    A financial statement, such as an income statement, cash flow ...
Related Articles
  1. Financial Advisor

    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. Markets

    What is Accounting?

    Accounting is the recording of financial transactions of a business or organization. It also includes the process of summarizing, analyzing and reporting these transactions in financial statements.
  3. Managing Wealth

    Accountant: Job Description & Average Salary

    Discover what the job description of an accountant entails, along with education and training, salary and skills necessary for success.
  4. Investing

    What are Financial Statements?

    Financial statements are a picture of a company’s financial health for a given period of time at a given point in time. The statements provide a collection of data about a company’s financial ...
  5. Investing

    Accounting Basics: Branches Of Accounting

    By Bob Schneider Accounting can be divided into several areas of activity. These can certainly overlap and they are often closely intertwined. But it's still useful to distinguish them, not ...
  6. Investing

    12 Things You Need To Know About Financial Statements

    Discover how to keep score of companies to increase your chances of choosing a winner.
  7. Investing

    Career Advice: Financial Analyst Vs. Accountant

    Read an in-depth comparison between a career as a financial analyst and a career as an accountant, including how to determine which is best for you.
  8. Investing

    Finding The Right Accounting Certification

    An accounting certification may be the boost your career needs. Find out how to get the most bang for your buck.
  9. Investing

    Explaining Financial Statement Analysis

    Financial statement analysis is the process of reviewing a company’s statements to gain an understanding of its financial health.
  10. Managing Wealth

    Accounting Research Manager: Job Description & Average Salary

    Learn about the average salary of an accounting research manager as well as the necessary skills, experience and education, and licenses to hold this position.
RELATED FAQS
  1. What are the objectives of financial accounting?

    Learn about the principle objectives of financial accounting, including the furnishing of the financial statements for those ... Read Answer >>
  2. How does financial accounting differ from managerial accounting?

    Learn about the main differences between financial accounting and managerial accounting, including why one is highly uniform ... Read Answer >>
  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?

    Read a brief overview of some areas where financial accounting helps in decision making for investors, lending institutions ... Read Answer >>
Hot Definitions
  1. Put Option

    An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security ...
  2. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  3. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  4. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  5. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  6. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
Trading Center