Financial accounting is a category of accounting that largely is concerned with financial position and performance, according to Investopedia. In particular, financial accounting focuses on the transactions of a business or other entity, tracking them as a way of gauging how well the entity is doing. Financial accounting is produced within an organization.
Chiefly, financial accounting leads to a category of financial reports that detail the financial activities of an entity. The activity typically is presented in a report, such as a balance sheet or an income statement, according to Accounting Coach website. These reports must be issued on a periodic basis in order to keep outside investors and others sufficiently aware of an entity's performance and standing.
Central to financial accounting's role is to provide financial information about an entity specifically for external consumption, rather than for internal analysis, which is the role of managerial accounting. The statements or reports that financial accountants produce primarily are provided to investors and shareholders, as well as some lenders, according to Accounting Coach. Ultimately, a publicly traded company's financial accounting statements will be distributed and viewed widely, serving as a key piece for investment analysts, media members, competitors and others to consider when analyzing a company.
An integral role of financial accounting is to provide relevant information so that an entity's financial standing and value can be judged independently. For this reason, financial accountants are not charged with establishing or defining the value of a business or other organization. Instead, they are charged with providing all of the elements that are used to determine value so that others can make that analysis for themselves.
Financial Accounting Standards Board
In order to ensure that businesses and other organizations provide accurate and clear financial reporters, the Financial Accounting Standards Board issues standards and principles for financial accounting for all nongovernmental entities. The standards are designed to keep reporting techniques and formats largely uniform so that outsiders can compare entities, knowing that each entity follows the same guidelines.
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