What is Financial Accounting?

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

Accounting made easy, for FREE!

Access the contact form and send us your feedback, questions, etc. We are always welcome to help someone out. You can also contact us if you wish to submit your writing, cartoons, jokes, etc. and we will consider posting them to share with the world! The Facebook and LinkedIn groups are also good areas to find people interested in accounting like yourself, don’t hesitate to join as everyone of all levels are welcome to become part of the community.

Are You Ready to Take Your Accounting Skills to the Next Level on the Information Highway?

How Can We Help?