Financial Accounting

Financial accounting is a form of accountancy that deals with the preparation of financial statements for external organizations, such as stockholders, suppliers, banks and government agencies. This site will provide in-depth information about financial accounting is and how accounting standards have changed over the years.

Financial Accounting - Info - Reporting of the financial position and performance of a firm through financial statements issued to external users on a periodic basis. Financial accountancy (or financial accounting) is the branch of accountancy concerned with the preparation of financial statements for external decision makers, such as stockholders, suppliers, banks and government agencies. The fundamental need for financial accounting is to reduce principal-agent problem by measuring and monitoring agent's performance.

Meaning of Accounting Equation - The value of a company can be understood simply as the useful assets that ownership of a company entitles one to claim. This value is known as Owners' Equity. Some assets of a company, however, cannot be claimed as equity by the owners of a company because other people have legal claim to them - for example if the company has borrowed money from the bank. The value of a resource claimable by a non-owner is called a liability. All of the Assets of a company can be claimed by someone, whether owner or not, so the sum of a company's equity and its liabilities must equal the value of its Assets. Thus the accounting equation describes what portion of a company's assets can by claimed by the owners.

Various account types are classified as 'credit' or 'debit' depending on the role they play in the accounting equation.

Assets = Liabilities + Equity (move assets to the right)

0 = -Assets + Liabilities + Equity

Balance Sheet - A financial accountant must equal assets with liabilities and owner’s equity. The balance sheet (or the statement of financial position) is the financial statement that summarizes the assets, liabilities, and owners’ equity of the company.

Difference between Financial Accounting and Managerial Accounting - The key difference between financial and managerial accounting is that financial accounting is aimed at providing information to parties outside the organization. Whereas managerial accounting information is aimed at helping managers within the organization make decisions.

Accounting Analyst - An accounting analyst evaluates and interprets public company financial statements. Public companies issue these (10-K) annual financial statements as required by the Security and Exchange Commission. The statements include the balance sheet, the income statement, the statement of cash flows and the notes to the financial statements. Specifically, the notes to the financial statements contain considerable quantitative detail supporting the financial statements along with narrative information.

This individual has extensive training in understanding financial accounting principles for public companies based on general accepted accounting principles as provided by the Financial Accounting Standards Board. Or, he/she may have additional experience in applying international accounting standards based on the rules put out by the International Accounting Standards Board.

As an example, the accounting analyst may work for a financial research company evaluating differing financial accounting principles and how they influence the company's reported wealth.

The accounting analyst will most likely hold a Masters Degree in Accounting (MSAcc) and will have specialized in the financial accounting area. Or, the analyst may have a MBA degree with an Accounting specialization. In addition, the analyst may hold the certified public accountant designation.

Financial Accounting Standard Board - The Financial Accounting Standards Board was created in 1973, replacing the Accounting Principles Board and the Committee on Accounting Procedure of the American Institute of Certified Public Accountants before it.

The FASB is a private body whose mission is to "establish and improve standards of financial accounting and reporting for the guidance and education of the public, including issuers, auditors and users of financial information." The FASB publishes GAAP.

American Institute of Certified Public Accountants - With over 350,000 CPA members (in 2005,) the American Institute of Certified Public Accountants (AICPA) is the largest CPA professional organization in the United States of America. Approximately 40% of its members are engaged in the practice of public accounting, in areas such as auditing, accounting, taxation, general business consulting, business valuation, personal financial planning and business technology. The majority (60%) of its members are CPAs who work in industry, government and education. However, because of the Institute's major role in self-regulation of most practicing CPAs, a large part of the Institute's resources are devoted to this function and to related programs to help CPAs maintain professional competence. The two most visible CPA practice functions are tax practice and the independent audits and similar services related to financial statements of all types of entities. Only CPAs and a now dwindling number of "grandfathered-in" non-CPA accountants are permitted to perform this audit function.

The Institute's overriding role is to promote and protect the profession of accounting. To accomplish this, it has a variety of functions, which include: providing group member benefits; preparing the Uniform CPA Examination; developing CPA professional standards; providing technical support to CPA members in many areas of practice; operating the profession's public relations programs; providing support to the academic community and representing the profession before Congress and federal agencies.

International Accounting Standards Board - The International Accounting Standards Board (IASB) was founded on April 1, 2001 as the successor of IASC based in London, UK. IASB is responsible for setting International Accounting Standards. The IASB hopes that through the creation of international accounting standards, it makes one set of financial statements more compatible with the rest of the world. Currently, a company's financial report would be different for the United States, United Kingdom, China, Australia, or South Africa, based on local generally accepted accounting principles.

Before the transformation the non-profit organization IASC Foundation was founded in March 2001 in Delaware, US as the parental body of the IASB. The IASC Foundation has two main bodies, the Trustee and IASB as well as Standard Advisory Council and the International Financial Reporting Interpretations Committee.

Financial Accounting Tips - Financial Accounting Tips