In this course, you will learn foundations of financial accounting information. You will Basic Info. Course 1 of 7 in the Financial Management Specialization. Financial accounting basics includes the fundamentals of accounting like identifying business activities, recording transactions, and understanding debits. This article gives an overview of financial accounting basics for the non accountant. Its orientation is toward recording financial information.
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It financial accounting basics deals with reporting this information to stakeholders outside the organisation, such as investors and creditors, who are the important, primary recipients of the information. There may be secondary recipients, too, such as competitors, customers, employees, and stock-market financial accounting basics, but the information generated by financial accounting is mainly aimed at external stakeholders who are not part of the business organisation per se.
How does financial accounting achieve its tasks? Financial accounting mainly generates three financial statements to provide the information required—the balance sheet, income statement, and cash flow statement. These documents provide the stakeholders a clear idea about the performance of the business during a particular period and its financial position at a specific time.
The objective of the financial accountants is not to estimate the value of a company but to facilitate this valuation by others. According to the International Financial Reporting Standards, financial accounting provides information about a business organisation that is useful to existing and potential investors, lenders, and other creditors in financial accounting basics decisions about providing resources to the organisation.
Objectives The objectives of financial accounting can be put in four categories, as follows: Record financial transactions as and when they occur bookkeepingso that the data can be analysed for preparing financial statements Calculate profit or loss, to enable management to take course-correction strategies if required Ascertain the financial strength of the company by determining its assets and liabilities Communicate the information to stakeholders through statements and reports, so that these stakeholders can take appropriate decisions on their financial accounting basics in the business Financial statements For meeting these objectives, financial accountants mainly prepare three types of documents, as briefly mentioned in the introduction above—the balance sheet, which reflects the assets and liabilities; income statement, which shows the profit and loss; and, cash flow statement, which charts the cash inflow and outflow.
Financial accounting basics external users of financial statements look at the balance sheet to find out how strong the business is, financially assets vs.
Financial Accounting Basics
Creditors and other lenders would be happy to see a positive balance sheet so that they know their investments are safe, and investors would like to see an income sheet with profit so that they know some money would be coming to them from the company in the form of dividend or interest.
Almost all financial accounting basics want to see the cash flow statement to know the cash availability with the company financial accounting basics whether it will be able to clear its liabilities.
Among the internal users of financial statements are managers, who can take decisions on the basis of the financial statements, and among the external users are government authorities, who can initiate tax measures.
Here are some additional notes on the three financial statements mentioned above. Assets include cash, stocks, buildings, and machinery, while liabilities include loans, interest, and wages.
Read more about balance sheets. Financial accounting serves the following purposes: Objectives of Financial Accounting Systematic recording of transactions: These recorded transactions are financial accounting basics on classified and summarized logically for the preparation of financial statements and for their analysis and interpretation.
If expenses exceed revenue then it is said that the business is running under loss. The profit and loss account helps the management and different stakeholders in taking rational financial accounting basics.
Financial Accounting | Basic Concepts and Principles
For example, if business is financial accounting basics proved to be remunerative or profitable, the cause of such a state of affairs can be investigated by the management for taking remedial steps.
Ascertainment of the financial position of business: To know this, accountant prepares a financial position statement of assets and liabilities of the business at a particular point of time and helps in ascertaining the financial health of the business.
Providing information to the users for rational decision-making: Accounting aims to meet the financial information needs of the financial accounting basics and helps them in rational decision-making.
To know the solvency financial accounting basics Taxes With financial accounting basics funds and resources, it's important for non-profits to follow these strategies. Trading The line between profitable forex trading and ending up in the red may be as simple as choosing the right account.
Investing The current, capital and financial accounts compose a nation's balance of payments, indicating the state of its economy and economic outlook.