What is Financial Accounting?

May 7, 2013 1:54 pm3 commentsViews: 463

financial_acctg_001Financial accounting represents just one sector in the field of business accounting.  It is a specialized branch of accounting that keeps track of a company’s financial transactions. Using standardized guidelines, the transactions are recorded, summarized, and presented in a financial report or financial statement 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.  If a corporation’s stock is publicly traded, however, its financial statements (and other financial reports) tend to be widely circulated, and information will likely reach secondary recipients such as competitors, customers, employees, labor organizations, and investment analysts.

The purpose of financial accounting is not just to report the value of a company.  Its primary purpose is to provide financial reporting for others to assess the value of a company for themselves.

Financial reporting includes the following :
- the external financial statements (balance sheet, income statement, statement of cash flows, and    statement of stockholders’ equity)
- the notes to the financial statements
- press releases and conference calls regarding quarterly earnings and related information
- quarterly and annual reports to stockholders
- financial information posted on a corporation’s website
- financial reports to governmental agencies including quarterly and annual reports to the Securities and Exchange Commission (SEC)
- prospectuses pertaining to the issuance of common stock and other securities

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). Corporations must also comply with the reporting requirements of the Securities and Exchange Commission (SEC).



  • Max Fabricante

    If financial accounting is just one sector of business accounting, what are the other sectors? What are their standards?

    • CPA In Virtual Business

      Thanks for the queries. Indeed, there are other sectors of accounting. Please watch out for our next articles where we will discuss them separately.

  • Feed The Muscle

    Spot on with this write-up, I actually suppose this subject about financial accounting needs much more consideration. I’ll probably be back again to learn far more, thanks for the info.

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