What is financial accounting?
Financial accounting is tracking a company’s income and expense. Using the standards put in place by government regulations, the transactions are recorded and then reported in several financial reports.
What is financial accounting for?
Companies use financial reports to update owners and outside lenders on the financial health of the company. If the company is publicly traded, the report is released for anyone to view.
A More Accurate Financial Report
Financial accounting is based on double entry accounting, this means that each transaction is recorded into two accounts. For example, when the company receives a check for $15k the income is recorded in the Receivable Account and when the company incurs an expense of 10k, it is recorded in the Payable Account.
This method of accounting gives you an accurate measure of the current state of the company’s finances in line with economic reality.
Why is it regulated?
Because financial reports are used for publicly traded companies and investment groups, each report needs to be easy to understand and easy to compare to competitors. The Financial Accounting Standards Board (FASB) sets the accounting standards for the US. A publicly traded company must also follow the Securities and Exchange Commission (SEC) accounting standards.
Standard Financial Accounting Reports
Your financial accountant will be able to generate a number of reports from their data, they include:
- Income statement (also called “earnings statement” or “profit and loss [P&L] statement”)
- Balance sheet (sometimes referred to as “statement of financial position”)
- Statement of cash flows
- Statement of stockholders’ equity
Do I need a financial accountant?
Financial accounting is useful for large companies with complicated income and expenses. This could mean a business with multiple locations or a small group of investors.
If you are looking for investors, then handing them a finance report will make a positive impression and will gain their trust immediately.
Is it the best option?
If your company is still gathering steam you may want to consider managerial accounting instead. Managerial accounting provides the same financial information but only to the company’s management. It isn’t intended for external use and does not fall under the same set of government regulations. You will still want a qualified accountant to put your report together so that your report is easy to understand as well as accurate.
Managerial accounting may give you the necessary insight into the financial well-being of your company without the expense of a full-time team of accountants.
Contact us today with any questions or if you would like us to take care of either your financial accounting or managerial accounting.