Financial Accounting

Financial accounting is the field related with the accountancy. It is just like a process of converting financial data into financial information. It deals with recording, summarizing and presenting the financial data of the organizations in such way that it could provide information about the position of the entity business to the stakeholders which includes Banks, Insurance companies, Leasing Companies, Government Organizations etc.

Thus financial accounting presents the data in such a way that it gives characteristics to the financial statements of having
• Understandability
• Relevance
• Reliability
• Comparability

Financial accounting is mainly concerned with the production of financial statements for external so financial statements must be prepared that external users must understand and rely on them.

Financial statements highlight
• The way in which company funds have been invested and financial position of the entity. (Balance Sheet)
• The return and profit made on those investments such sale of goods, dividends, interests and royalty received. (Income statement)
• New funds generated by the entity & paying them back to the shareholders as dividends. (Statement of changes in equity)
• Cash inflows & outflows from operational, financial and investing activities. (Cash flow statements)

Financial accounting also implies that all the above statements must be prepared in accordance with International Accounting Standards (IAS) and local laws. These standards and laws provide guidance in preparation of financial statement which is generally applicable and acceptable all over the world and states that the objective of financial statements is to provide information about the financial position, performance and changes in the financial position of an entity that is useful to a wide range of users in making economic decisions, and to provide the current financial status of the entity to its shareholders and public in general.

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