Financial accounting is a specialized branch of accounting that keeps track of a company’s financial transactions. Define with Explain it each one Concept of Financial Accounting Discuss the topic, Financial Accounting: Meaning of Financial Accounting, Definition of Financial Accounting, Nature and Scope of Financial Accounting, and Limitations of Financial Accounting! Using standardized guidelines, the transactions are recorded, summarized, and presented in a financial report or financial statements such as an income statement or a balance sheet. Companies issue financial statements on a routine schedule. The statements are considered external because they are given to people outside of the company, with the primary recipients being owners/stockholders, as well as certain lenders. Also learned, Accountability in Financial Management, Financial Accounting: Meaning, Nature, and Scope!
If a corporation’s stock is publicly traded, however, its financial statements (and other financial reporting) tend to be widely circulated, and information will likely reach secondary recipients such as competitors, customers, employees, labor organizations, and investment analysts. It’s important to point out that the purpose of financial accounting is not to report the value of a company. Rather, its purpose is to provide enough information for others to assess the value of a company for themselves.
Because external financial statements are used by a variety of people in a variety of ways, financial accounting has common rules known as accounting standards and as generally accepted accounting principles (GAAP). In the U.S., the Financial Accounting Standards Board (FASB) is the organization that develops the accounting standards and principles. Corporations whose stock is publicly traded must also comply with the reporting requirements of the Securities and Exchange Commission (SEC), an agency of the U.S. government. The similarity between Financial and Management Accounting!
Accounting is the process of recording, classifying, summarizing, analyzing and interpreting the financial transactions of the business for the benefit of management and those parties who are interested in business such as shareholders, creditors, bankers, customers, employees, and government. Thus, it is concerned with financial reporting and decision making aspects of the business.
The American Institute of Certified Public Accountants Committee on Terminology proposed in 1941 that accounting may be defined as, “The art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of a financial character and interpreting the results thereof”.
The term ‘Accounting’ unless otherwise specifically stated always refers to ‘Financial Accounting’. Financial Accounting is commonly carrying on in the general offices of a business. It is concerned with revenues, expenses, assets, and liabilities of a business house. Financial Accounting has the two-fold objective, viz,
Financial accounting is a useful tool to manage and to external users such as shareholders, potential owners, creditors, customers, employee, and government. It provides information regarding the results of its operations and the financial status of the business.
The following are the functional areas of financial accounting:-
Financial accounting is concerned with the preparation of final accounts. The business has become so complex that mere final accounts are not sufficient for meeting financial needs. Financial accounting is like a post-mortem report. At the most, it can reveal what has happened so far, but it cannot exercise any control over the past happenings.
The limitations of financial accounting are as follows:-
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