Financial accounting is the process by which the operations of the organization are collected, measured, recorded and finally reported to the outside world. This process is intended to accurately reflect the business activity, allows businesses the legal, fiscal and regulatory requirements to submit financial statements to business owners, facilitates the analysis and facilitate efficient allocation of resources.
The Final Bill
In practical terms, the main purpose of financial accounting is to accurately prepare a final report of the organization for a certain period, otherwise known as financial statements. Three main financial calculations profit and loss, balance sheet and the statement of cash flows.
The firm initially began the preparation of such accounts to provide important information to shareholders and creditors of the loan. Without reliable information, it is much riskier for lenders to provide capital to the business. In turn, investors and shareholders to compare the final accounts among different companies to look for better prospects.
Purposes of financial reporting
In 1973, the American Institute of certified public accountants, Institute of certified public accountants or, published a study entitled “objectives of financial statements”. The study concluded that the financial statements were mainly useful to help multiple parties make economic decisions.
Aicpa further described in financial accounting as the correct method for submission of final reports. The final report was primarily intended for those who have only limited access to information on specific business enterprises.
Financial Reporting Standards
In the United States, financial reporting standards established by the Council for standards of financial accounting and accounting standards. Standards Board accounting contracts on securities and exchange Commission, or sec, to supervise approved techniques and applications of financial accounting.
Financial accounting usually is to those who have studied the methods, concepts, history, and laws associated with its practice. In the US, these people are called certified public accountants or CPA.