Financial accounting can typically be widely defined in the following terms


“the process of preparing assorted financial statements that companies and other business concerns including partnerships as well as sole proprietorships can use, so as to show their financial performance in a specific period of time of the business entity, to all the people associated with the business concern.”


Apart from the above, the finance department of any company can easily use financial accounting to easily showcase the company’s overall financial position to all the relevant people who are actually the main stake holders of the company or organization. These may also include the business concern’s many creditors, investors, suppliers, and customers, to quote but a few.


In a nut shell, financial accounting can also be quite colloquially described as the overall process of not just recording but also summarizing, and lastly the reporting the various transactions that may stem as a direct result of the daily business operations of the commercial entity, over an already pre-determined as well as specific period of time.


Here, it is pertinent to note that just about all of the requisite transactions (both big and small) that occur, have to be formally summarized through an otherwise highly efficient preparation of financial records that are known today as ‘financial statements’.

As a matter of fact, this system of statements had originally been invented almost six hundred ago, (in the early 1500s or so) and has subsequently been used with very little alteration throughout the intervening time period.


o   The different financial statements


Some of the more common financial statements that are in vague today, with regard to accounting principles just about all over the world, include some of the following:


  • The cash flow statements
  • The balance sheet of the company
  • The income statements


The above three taken when together in their entirety, typically encapsulate almost the whole of the business organization’s overall operations that may have been conducted over that period of time, that is to be assessed, by the above mentioned financial statements.


o   Generally established universal accounting principles or GAAP


Here, it is pertinent to note that the world of financial accounting basically depends on an otherwise well-established set of core accounting principles. And it is these core principles, that essentially help the business keep track of all of its myriad different mandatory and regulatory reporting requirements.


Let us take the example of public limited companies in the United States of America. They are essentially mandated by the law to ensure that their financial accounting is basically execute all as per Generally Accepted Accounting Principles or GAAP.


Here the core objective of the establishment of these universally accepted financial accounting principles is to help make sure that the information being processed is highly consistent and as such is of mutual benefit to not just the organization’s creditors, but also the various regulatory bodies as well as the tax authorities.


In the light of the above, we can easily state that it is almost impossible to run an organization without using at least some form of financial accountancy principles.