What is Financial Accounting?
The term financial accounting relates mainly to the preparation of financial statements for presentation to third parties such as investors, lenders, suppliers, and tax authorities.
The prime purpose of financial accounting is to report the results of the business for the accounting period. Financial accounts are useful to management but do not provided the detailed accounting information required to allow management to plan and control their business
As the financial statements are normally for use external to the business, in order for them to be understood, they are prepared in accordance with standard guidelines such as the Generally Accepted Accounting Principles (GAAP).
Financial accounting is in contrast to management accounting which is normally for use inside the business. In management accounting, the presentation of information does not have to comply with accounting standards, and can therefore be in the format most suitable for allowing management to control, operate, and make decisions about their business.
For further information see the Wikipedia Financial Accounts definition.
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About the Author
Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years in all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a BSc from Loughborough University.