WHAT IS FINANCIAL ACCOUNTING
Financial Accounting is a branch of Accounting which keeps track of the financial transactions of an organization
IMPORTANCE OF FINANCIAL ACCOUTING IN AN ORGANIZATION
Financial Accounting plays a big role in enhancing transactions in an organization. They are recorded and presented in a report such as a balance sheet or an income statement. Financial statements are presented routinely and are considered external accounting since they are sent or presented to people outside the company. The reports are sent to shareholders of the organization and are also sent to lenders when the organization is trying to secure a loan. Companies that are publicly traded have their financial statements widely circulated such that the information doesn’t stay within the organization. It can land with the competitors, employees, financial analysts and labor organizations. While financial accounting helps find out the value of a company, that is not the primary purpose. Financial accounting is meant to give others enough information to assess the company’s value themselves.
Financial accounting operates under the rules stipulated by the accounting standards and the generally accepted accounting principles (GAAP). The information from this standard is used by regulators, creditors, investors and tax authorities and should therefore be consistent. Standards in the US are developed by the Financial Accounting Standards Board (FASB). Publicly traded companies are required to comply with the Security and Exchange Commission (SEC) requirements. The SEC is a US government agency.
WHAT ARE THE CATEGORIES OF FINANCIAL ACCOUNTING
Financial accounting is divided into five categories including expenses, assets, equity, liability and revenues. These appear on the income statement. Net income is accounted for at the bottom of the income statement in financial accounting. Financial accounting is performed in either the cash method or the accrual method. A combination of the accrual and cash method can also be used. The accrual method of accounting, it is revenue earned that is reported as opposed to when the money is received. Therefore, the company’s financial information is lines up with the realities of the economy.
LIST SOME MAJOR FINANCIAL STATEMENTS
The financial statements include income statements, statement of comprehensive income, balance sheets, statement of cash flows and the statement of stockholders’ equity. The income statement is a report on the profitability of an organization over a period of time. the statement of comprehensive income covers the more complex issues of the financial statement over the same period of time as the income statement. The statement of stockholders’ equity shows how much the stockholders are worth over the same period of time as the income statement..
DOES THE STANDARD OF FINANCIAL ACCOUNTING REMAIN THE SAME
The standards of financial accounting are always evolving. Whenever there are changes in the economy, the standards are adjusted. The GAAP caters for accounting for all industries, including those that have complex business transactions. The GAAP standards can be adjusted to meet changes by the government on the industry regulations. The FASB, which also provides financial accounting regulations, is a non-governmental organization which researches and comes up with specific rules of financial accounting. As per regulations provided by the SEC, publicly traded corporations must share their financial statements with their stockholders annually. The statement must be audited by independent CPAs to ensure that the companies follow the GAAP guidelines.
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