The Basics of Financial Accounting
Financial Accounting
Financial accounting is the area of accounting dealing with the reporting and analysis of financial transactions associated with a company. This includes the preparation of periodic financial reports for dissemination to stakeholders. Such reports are prepared as a tool to inform the decision makers about the performance of the company. They provide objective facts in the form of reports that can be used to make strategic decisions for the growth of the organization.
A company’s financial reports may also be used for tax purposes. There are different types of financial accounting including single-entry and double-entry bookkeeping. The first category involves only the recording of financial transaction and the second category involves the recording of information for more than one transaction. The information recorded in the financial reports is used to generate reports that can be used for planning purposes and to implement necessary changes for better financial performance.
The main purpose of financial accounting is to record the income or the financial performance of a company on a daily basis. The importance of maintaining records of daily financial activities cannot be stressed highly. If this activity is not properly monitored then it can lead to grave consequences like financial crisis. To avoid such complications it is very important to hire the services of a qualified and experienced accountant who will be responsible for recording the income and providing the necessary reports at the end of the fiscal year. The following are the four basic financial statements that are required to be recorded by the accountants in a company.
The Basics of Financial Accounting
Cash Flows The cash flow or funds flow in a company is the amount of cash that is generated or directed to the company on a daily basis. It is the most significant financial statement in any type of business because it presents the capacity of the company to pay its bills. As the name suggests, the cash flows will be the result of the receipts and payments for products and services rendered by the company. The cash balances will be recorded as the difference between total assets and total liabilities. It is very important to have a good cash flow so that there is no difficulty while paying the bills and keeping the accounts balanced.
Financial Reports The accounting records provide the details regarding the transactions made in the month of September, October and November of any year. This will include the income statement, balance sheet, and statement of cash flows. For better management of the company’s financial transactions the records of the expenses and the sales are also included in the financial reports. Apart from these records the accountant provides reports pertaining to the balance sheet, income statement, and profit and loss statement.
Audited Financial Statements An accountant reviews the accounts’ financial records and analyzes the changes made in the accounting policies and procedures. In order to keep track of the changes made, it is mandatory to report back to the CPA (Certified Public Accountant) within 30 days. It is also required to provide the CPA with updated copies of all statements made. To make an accurate financial records it is necessary to follow the principles of good accounting practices.