Financial Accounting: Meaning, Principles & Importance

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Conversations in an interview type format with two experts are embedded inside many topics, (an investmenr analyst and an international accountant.) This internal consistency is comfortable for the reader. This seems to be a discussion for non-accounting majors that presents the material from for non-debit/credit emphasis. The overall picture is presented well, but not enough emphasis on the basic mechanics of accounting that we need to give our two-year students. The only real weakness in the text is just that it is not updated for more recent changes in accounting principles. If the instructor is willing to cover these, the text is very easy for the student to read and to comprehend. In addition to setting dollar budgets for business units, many companies now set head count limits too.

What are the 5 elements of financial accounting?

There are five elements of a financial statement: Assets, Liabilities, Equity, Income, and Expenses.

Whats the Difference Between Bookkeeping and Accounting? is the process of preparing financial statements that companies’ use to show their financial performance and position to people outside the company, Including investors, creditors, suppliers, and customers. GAAP is a set of financial statement reporting rules set by the Financial Accounting Standards Board. It covers a wide array of topics, including accounting practices and how financial statements are presented.


Financial statements generated through are used by many parties outside of a company, including lenders, government agencies, auditors, insurance agencies, and investors. Private companies may follow GAAP or prepare financial statements based on another comprehensive basis of accounting, such as tax-basis or cash-basis financial statements. Accounting standards codify the generally accepted accounting principles. They present the general principles to be put to application using professional judgment. This text covers all of the usual topics in financial accounting, but with a broader business view surrounding the accounting procedures.

What are the 4 major functions of accounting explain each?

The primary functions of accounting are to track, report, execute, and predict financial transactions. The basic function of financial accounting is to also prepare financial statements that help company leaders and investors to make informed business decisions.

I would not adopt this as a primary text for my courses, but it would make an excellent supplemental resource because of the excellelnt real-world examples. Two-year students that I teach need an higher emphasis on the basic accounting tools. I would prefer more headings and have the headings linked to learning objectives and exercises. This is something that all commercial texts include, and I find it helpful. The text seems to be written at a level much higher than the principles level.

Learner Stories

Other less-used elements of the financial statements are the statement of retained earnings and a large number of accompanying disclosures. It’s important to point out that the purpose of financial accounting is not to report the value of a company. Rather, its purpose is to provide enough information for others to assess the value of a company for themselves. In practice, a company doesn’t choose between financial accounting and managerial accounting — it uses both.

Financial accounting is concerned with the preparation of final accounts. The business has become so complex that mere final accounts are not sufficient for meeting financial needs. At the most, it can reveal what has happened so far, but it cannot exercise any control over the past happenings. Your role will encompass budgeting, managing tax payments, performing internal audits, and providing consultancy to senior managers for cost and revenue analyses.