Financial Accounting

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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.

INVESTOPEDIA EXPLAINS '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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