What’s Financial Accounting?
Financial accounting can be defined as a specific kind of accounting which is often used by businesses to repair reports on the finances of a company for individuals outside of the organization like government agencies and stockholders. Basically, this type of accounting is normally governed by specific accounting standard that ensures there is uniformity in reporting.
Types of Financial Accounting
There are two types of accounting i.e. financial and managerial accounting.
*Managerial Accounting:-
It focuses on interpreting the financial information to be used within a firm to help managers in making financial decisions. Basically, a managerial accounting report can be presented in any type of formant, and don’t have to adhere to any specific accounting principle, as long as ethical standards and good practice are followed.
*Financial Accounting:-
It generally follows GAAP i.e. generally accepted accounting principles and isn’t normally used to make internal decisions. One very essential decision between financial and managerial accounting is that the managerial one has got reports which are future oriented and they address the financial requirements of the firm. On the other hand the financial one has got a report which is strictly based on past financial performance.
Function of Financial Accounting
The main function of financial accounting is preparing a reliable report on the company’s financial state at any given time. Generally, corporations as well as the other large business organizations normally prepare reports on regular schedules. A financial report doesn’t provide, or interpret on, the financial health of a firm. Rather, it reports the objective financial content in a specific format so that the viewers can hassle free interpret it.
Benefits of Financial Accounting
It creates public records of a firm’s historical financial performance that allows different stakeholders as well as stockholders outside of the firm to get a clear view of the business’s financial health. Since it is often recommended that financial accountants try to follow a strict set of the accounting principles, different stakeholders should be assured that the content they’re receiving is very accurate. Based on these assumptions, stakeholders are supposed to make predictive assumptions on the performance and focus on the future financial decisions of a business. Don’t you think that that is in deed great?
Considerations
As financial statements are usually used by very many different individuals of a firm or business, financial accounting often follows a set of standards which include GAAP. Typically, the FASB i.e. Financial Accounting Standard Board is a United State based organization which develop such standards. The financial accounting specialists who are used by very many different firms around the globe are the CPAs i.e. Certified Public Accountants. There are some organizations which prefers using the CMAs i.e. Certified Management Accountants since they believe they can effectively and efficiently protect their financial records. These experts are trained to prepare reports regarding the internal cost measure as well as the accounting for the managerial review.
