Define Financial Accounting

Question

Give a brief introduction of the term ‘Financial Accounting’. And also write down its elements?

Answer 1

Financial Accounting is the procedure in that business dealings are recorded methodically in the different books of accounts managed by the organization so as to make financial statements. Such financial statements are essentially of two types: primary is Profitability Statement or Profit and Loss Account and subsequent is Balance Sheet.

The element of Financial Accounting:

i) Monetary Transactions: In financial accounting only dealings in money terms are considered. Transactions not stated in money terms don’t find any place in financial accounting, howsoever imperative they might be from business opinion.

ii) Historical Nature: Financial accounting reflects on only those transactions which are of historical nature that is, the transaction which have already happened. No futuristic transactions find any place in financial accounting, howsoever imperative they might be from business opinion.

iii) Legal Requirement: Financial accounting is a lawful need. It is needed to manage the financial accounting and make financial statements there from. It is as well compulsory to get such financial statements audited.

iv) External Use: Financial accounting is for those people who are not element of decision making procedure concerning the organization such as customers, investors, suppliers, financial institutions and so on. Therefore, it is for external use.

v) Disclosure of Financial Status: It relates the financial status and financial presentation of the business as a entire.
vi) Interim Reports: Financial statements that are depended on financial accounting are interim reports and can’t be the last ones.

vii) Financial Accounting Process: The procedure of financial accounting gets influenced because of the different accounting policies pursued by the accountants. Such accounting policies differ mostly in two regions: Calculation of depreciation and Valuation of inventory.