Financial accounting is a specific type of accounting that keeps record of a company’s financial transactions. It follows certain guidelines and keeps track of the proceedings,summaries are made and presented in the form of financial statements such as balance sheets. While doing business owners get monetary information after certain periods of time through financial accounting. Along with the owner,other people who have stakes in the company such as investors and clients are also privy to this data. If there are problems in these records then the business will not be able to get a loan easily. It states the amount of money owed to those who supply,money owed by customers and the various costs incurred such as day to day running expenses and the amount of cash left. It is used to conduct analysis of important parts of your business such as calculating total sales in a month.
Financial accounting an integrated approach 6th edition provides a detailed introduction to accounting as well as covering other aspects. Financial statements are an integral part of any company and are usually calculated every year or after every three months. They can be divided into:
- A balance sheet gives an overall view of the company’s financial well being at that point in time. It shows the business net worth and all the assets that it has
- A cash flow statement shows the amount of cash that a business is receiving as well as the cash that is needed to be given out in the form of payments. It is very beneficial if you are planning a large buy or how to prepare for slow times.
- The profit and loss statement shows the amount of revenue earned and all costs. Profit or loss is also calculated for that period of time.
All these statements are very important as banks will look at them and then decide to give you a loan and investors will look at them and decide if they want to invest in your company.
All types of business owners manage some sort of financial accounts whether it be a sole trader or a partnership. Both these business types and more have been discussed in accounting an introduction to principles and practice 8th edition. A sole trader is where one person owns and runs the entire business,they are personally responsible for all losses and will keep all the profits. Accounting for this sort of business requires only one set of records as the business and the owner are one,however business transactions should be recorded separately to see if the a profit is being made or not. A partnership is where more than one individual owns and runs a company. The owners share the profits. Separate accounts have to be maintained to keep track of each partners investment and their share of profit and loss.