Financial accounting is the branch of accounting that is concerned with recording financial transactions with the intent of compiling financial statements. These financial statements are used for several purposes and by numerous parties. However, the one common goal among these parties and purposes is to attempt to conservatively track the economic position of an entity.
This is done with the use of financial statements, most commonly referred to as the Balance Sheet, the Income Statement, and the Statement of Cash Flows. Each of these shows different activity that has been recorded and translated using financial accounting fundamentals. There are several conventions, rules, principles, etc. that govern the way that these should be presented. It often is important to consider what type of an entity that is issuing these, as well as the regulatory bodies that are governing it. However, certain aspects of Financial Accounting hold true regardless, and these will be the ones that we discuss here.
Financial Accounting of the Balance Sheet
The Balance Sheet shows the assets, liabilities, and equity for an entity at a point in time.
- Balance Sheet
- Classification of Assets and Liabilities
- Nominal Accounts
- Functions of Special Accounts
- Activity Relating to Buildings
- Working Assets
- Current Assets
- Patents, Copyrights, Trademarks
- Cash and Funds
- Deferred Expense
- Consignment Inventory
- Capital Liabilities
- Funds and Reserves
Financial Accounting of the Income Statement
The Income Statement shows the income and expense for an entity. This statement shows the activity for a certain period of time, and has specific start and end dates which this activity is included.
- Cost of Sales
- Gross Profit
- Selling Expense
- Administrative Expense
- Secondary Income
- Deductions from Income
- Miscellaneous Profit and Loss
- Accruals and Closing Entries
Financial Accounting and Reporting
Financial statements are how an entity communicates the results of its financial accounting to outsiders. This summarizes and clarifies aspects of the accounting in an easier to read format than one normally would be able to ascertain by reading the ledger directly.
- Purpose and Use of Financial Statements
- Preparing Financial Statements
- Preparing a Balance Sheet
- Preparing a Profit and Loss Statement