Introduction to Financial
Accounting
Financial accounting is a specialized branch of accounting that keeps track of a
company's financial transactions. Using standardized guidelines, the transactions
are recorded, summarized, and presented in a financial report or financial
statement such as an income statement or a balance sheet.
Companies issue financial statements on a routine schedule. The statements are
considered external because they are given to people outside of the company,
with the primary recipients being owners/stockholders, as well as certain lenders.
If a corporation's stock is publicly traded, however, its financial statements (and
other financial reportings ) tend to be widely circulated, and information will likely
reach secondary recipients such as competitors, customers, employees, labor
organizations, and investment analysts.
It's important to point out that the purpose of financial accounting is not to
report the value of a company. Rather, its purpose is to provide enough
information for others to assess the value of a company for themselves.
Because external financial statements are used by a variety of people in a variety
of ways, financial accounting has common rules known as accounting standards
and as generally accepted accounting principles (GAAP). In the U.S., the Financial
Accounting Standards Board (FASB) is the organization that develops the
accounting standards and principles. Corporations whose stock is publicly
traded must also comply with the reporting requirements of the Securities and
Exchange Commission (SEC), an agency of the U.S. government.
Accounting
Financial accounting is a specialized branch of accounting that keeps track of a
company's financial transactions. Using standardized guidelines, the transactions
are recorded, summarized, and presented in a financial report or financial
statement such as an income statement or a balance sheet.
Companies issue financial statements on a routine schedule. The statements are
considered external because they are given to people outside of the company,
with the primary recipients being owners/stockholders, as well as certain lenders.
If a corporation's stock is publicly traded, however, its financial statements (and
other financial reportings ) tend to be widely circulated, and information will likely
reach secondary recipients such as competitors, customers, employees, labor
organizations, and investment analysts.
It's important to point out that the purpose of financial accounting is not to
report the value of a company. Rather, its purpose is to provide enough
information for others to assess the value of a company for themselves.
Because external financial statements are used by a variety of people in a variety
of ways, financial accounting has common rules known as accounting standards
and as generally accepted accounting principles (GAAP). In the U.S., the Financial
Accounting Standards Board (FASB) is the organization that develops the
accounting standards and principles. Corporations whose stock is publicly
traded must also comply with the reporting requirements of the Securities and
Exchange Commission (SEC), an agency of the U.S. government.
