What is financial accounting?
Financial accounting focuses on providing accounting reporting and analysis for other areas of the business. Financial accountants are responsible for creating and issuing the company's financial statements, providing accurate and timely information to management, and ensuring that all legal reporting requirements are met. In financial accounting, the goal is to consistently provide valuable, accurate, and reliable information.
The issuance of financial statements is the responsibility of the financial accounting department. These statements summarize the company's activities for the year and are used by shareholders, banks, employee trading units and the general public to assess the financial value of the company. Statements are audited by independent accountants to validate the information and provide security for readers.
The financial statements are composed of five documents; balance sheet, income statement; cash flow and equity of owners or shareholders and notes. Notes to the financial statements are written explanations of items in the financial statements. Unusual items or procedural changes that impact the financial statements are detailed here.
The balance sheet is a summary of all assets and liabilities at the end of the year. The accounts reflect the total amount of cash and liquid assets available, the amount of debt the company has and how much money has been spent across various categories. Financial accounting firms perform an analysis of these values using ratios and other calculations to determine the financial health of the company.
An income statement is a critical component in financial accounting. It provides a clear list of all sales, expenses and net income for the year for the business. This statement provides information about the year's sales performance and the company's overall profitability.
A cash flow report provides details on funds received and disbursed. This section provides information about the income amounts listed on the income statement. Funds received or lost from interest bearing investments are listed here.
The statement of equity or shareholders shows the total net income for the year and how it will be distributed to shareholders or reinvested in the business. Public companies must inform the number of issuances of shares, the type of share and the amount of dividends to be paid on the shares, in accordance with the articles of association and the shareholders' agreement.
All certified public accountants have completed intermediate and advanced courses in financial accounting. There is no additional designation for a financial accounting specialty. The skill set for a financial accountant should focus on data manipulation and analysis software and tools.