Financial accounting is the branch of accounting focused on recording, summarizing,
and reporting the myriad of transactions resulting from business operations over a
period of time. These transactions are summarized in the preparation of financial
statements.
1. The Accounting Equation
The entire system of financial accounting is built on a single, foundational balance:
Assets=Liabilities+Equity
Assets: Resources owned by the business (e.g., Cash, Inventory, Equipment).
Liabilities: Obligations or debts owed to outside parties (e.g., Loans,
Accounts Payable).
Equity: The owner’s residual interest in the company after all liabilities are
deducted from assets.
2. Core Financial Statements
There are four primary reports used to communicate a company’s financial health:
Balance Sheet: A "snapshot" of a company’s financial position at a specific
point in time. It lists assets, liabilities, and equity.
Income Statement: Reports the company's revenues and expenses over a
specific period (e.g., a quarter or a year) to show net profit or loss.
and reporting the myriad of transactions resulting from business operations over a
period of time. These transactions are summarized in the preparation of financial
statements.
1. The Accounting Equation
The entire system of financial accounting is built on a single, foundational balance:
Assets=Liabilities+Equity
Assets: Resources owned by the business (e.g., Cash, Inventory, Equipment).
Liabilities: Obligations or debts owed to outside parties (e.g., Loans,
Accounts Payable).
Equity: The owner’s residual interest in the company after all liabilities are
deducted from assets.
2. Core Financial Statements
There are four primary reports used to communicate a company’s financial health:
Balance Sheet: A "snapshot" of a company’s financial position at a specific
point in time. It lists assets, liabilities, and equity.
Income Statement: Reports the company's revenues and expenses over a
specific period (e.g., a quarter or a year) to show net profit or loss.
