Definition of Financial Accounting

Financial accounting is the process of recording, summarizing and reporting the series of transactions arising as a result of business operational activities for a specific period of time.


These transactions are incorporated in making financial statements ( the balance sheet, income statement and cash flow statement) summing up the company’s operating performance over a particular period.

Financial accounting works on a series of conventional accounting practices. For public -related – companies within the United States, businesses are obliged to perform financial accounting in compliance with Generally Accepted Accounting Principles (GAAP).

The establishment of these accounting principles aims to deliver consistent information for investors, creditors, regulators and tax authorities.
Accrual Method Vs. Cash Method
Financial accounting is performed via two accounting methods: accrual-based or cash-based or even sometimes a combination of the two.
Accrual accounting: It involves recording transactions soon after a transaction is being made & the revenue is recognized.
Cash –based accounting: It involves recording of transactions only once the cash is exchanged. Revenue is only recorded once the payment is received and expenses are only recorded after the payment of the liabilities.

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