FINANCIAL ACCOUNTING Meaning and
Definition
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Financial accounting is a branch of accounting that deals with the preparation, presentation, and interpretation of financial statements for external users. It is a systematic process of summarizing, analyzing, and reporting the financial transactions and activities of a business entity to provide relevant and reliable information for decision-making purposes.
In financial accounting, the primary focus is on generating financial statements such as the balance sheet, income statement, and cash flow statement. These statements summarize the financial position, operating performance, and cash flow activities of a company, providing a comprehensive view of its financial health and performance over a specific period.
The objective of financial accounting is to provide accurate, relevant, and reliable financial information to external stakeholders, including shareholders, investors, creditors, and regulatory authorities. This information is crucial for making informed business decisions, assessing the financial performance and stability of a company, and evaluating its potential for profitability and growth.
Financial accounting follows generally accepted accounting principles (GAAP), which are a set of established rules and standards that govern the preparation and presentation of financial statements. These principles ensure consistency, comparability, and transparency in financial reporting across different companies and industries.
Overall, financial accounting plays a crucial role in enabling stakeholders to understand the financial position, performance, and prospects of a company, aiding in the evaluation of both its current and future financial viability.
Etymology of FINANCIAL ACCOUNTING
The etymology of the word "financial accounting" can be traced back to the Latin and Old French roots.
The word "financial" is derived from the Latin word "finis" meaning "end" or "boundary". In the context of accounting, it refers to managing, monitoring, and reporting on the financial transactions and resources of an organization.
The word "accounting" comes from the Old French word "aconter", which means "to reckon" or "to calculate". It further evolved from the Latin word "computare", which carries a similar meaning. Accounting involves collecting, recording, analyzing, and interpreting financial information to facilitate decision making, financial reporting, and auditing.
When these two words are combined, "financial accounting" refers to the specific branch of accounting that focuses on the recording and reporting of financial transactions to external stakeholders, such as investors, creditors, and regulatory authorities.
