What is Financial Accounting
In recent years, accounting has been divided into different types; arguably the most important
type of accounting.
Today’s Post is showing at what is financial accounting.
Financial accounting is the process of gathering and summarising financial information to prepare financial reports of an entity.
All entities are required by law to provide financial reports, which cover the entire
transactions and activities of an entity during a year.
The legal reports an entity has to provide includes; the income statement, the balance
sheet and the cash flow statement.
It should be noted that different countries have or use different accounting standards
For example, entities in the United Kingdom use UK GAAP, where the United States use the
USGAAP and other countries use IFRS or other recognized standards.
Financial accounting is provided for the users outside of an entity. These include potential
shareholders, tax authorities, and creditors.
And known in the previous video called “Who are the users of accounting information”
as external users.
As well, the main purpose of financial accounting is to evaluate the past performance of an
This is Example Time! This is where we put the theory into so-called real-life examples.
This is to try and increase your understanding of the topic or theory.
A shipping company called Busy Boats have recently published the financial statements
for the year and Sue wants to invest in some shares.
She can use the financial reports like the income statement to look at the performance
of the business during the year.
She may also want to look at the financial and cash position of the business in the balance
sheet and cash flow statement.
If Sue has access, she may want to compare previous years of financial reports and analyze
whether the performance has improved and see if the financial and cash position experienced
growth from previous years.
Then after analyzing Sue will have to decide whether the company is good to invest in.
So that was the explanation of financial accounting. If you enjoyed it, press the like button.
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