Updated on March 3, 2023
Financial accounting is a branch of accounting which records all the transactions related to a business. The ultimate objective or the end result of this branch of accounting is to calculate the Profit or Loss generated by the business. It also helps in assessing the business, its analysis for investors and other stakeholders.
Financial accounting Explained
Financial accounting is the procedure followed for recording, classifying, analyzing and reporting a vast number of transactions related to all aspects of the business over a period of time.These transactions are used for preparing primary financial statements like the Balance Sheet, Income statement Cash flow statement, Profit & Loss Account statement etc. These statements help in highlighting the company’s operating performance over a specified period.
Importance of Financial Accounting
1 It represents a company’s financial status and results to the outside world through financial statements which share details regarding its sales, expenses, assets and liabilities etc.
2 Financial accounting includes the smallest of business details which are then summarised as per the Generally Accepted Accounting Principles (GAAP) for creating clear business statements.
3 It helps in safeguarding the interests of shareholders and other investors who do not participate in businesses’ day to day activities and hence rely on the information revealed by the financial accounting numbers for its fair evaluation.