What is financial accounting?

In August’s blog article we looked at the role of accountants in a general sense and how the true value of a good accountant was the ability to keep their finger on the pulse of the business’s finances, providing professional and strategic advice to the decision makers in a company.

While general or managerial accounting provides this information and advice to members within a business, financial accounting prepares this for stakeholders outside of the organisation such as shareholders, owners, tax authorities, suppliers, banks, etc.

Financial accounting is therefore the analysis of financial data in order for the preparation of financial reports (such as balance sheets and income statements), compiled on a periodic basis, for users external to the organisation or business. This area of accounting views money as a measure of economic performance opposed to the traditional view which sees it more as a factor of production.

Financial accounting covers all aspects of monitoring and control of money as it enters and exits a business in the form of income and expenses as well as assets and liabilities. This allows it to fulfil its function of accurately reporting the value of the company for external parties to assess.

The information contained in the reports is therefore advantageous for business leaders as it can be used to evaluate assets, income, expenses and equity and also be used by investors to help them select a business to invest in.

Contact Brett on 021 421 4444 to find out more about the accounting services offered by Dirmeik Consulting.