This is a detailed article on financial accounting. It was written to help you understand better what accounting is all about. It consists of the meanings, types, and examples of financial accounting. In addition, free pdfs and courses on financial accounting are recommended by our experts to help improve your skills.<\/p>\n
This is a particular branch in accounting that reports all the records of transactions from the business done within a range of time. This report is the result of summarizing, analyzing, and reporting the records in a financial statement. <\/p>\n
A person who manages finance<\/a> or a financial account is called a financial accountant. A financial accountant can work for companies or decide to be a freelancer. Financial accounting is governed by some guidelines and frameworks called Generally Accepted Accounting Principles (GAAP). This is why accounting, whether local or international, follows a particular standard and rules in summarizing and making statements.<\/p>\n There are a series of established accounting principles that guide the whole accounting process, just like stated above one, the principle is the GAAP. Therefore, the primary goal of establishing these principles is to provide consistent information to regulators, investors, and probably tax authorities. <\/p>\n Everything that is recorded for analysis is done in the financial statements, including revenues and expenses. However, the financial statement is classified into 5.<\/p>\n As a result of accounting, determining net income, which is always the last in the income statement, became a whole lot easy. It is important to know that it can work in small and big firms or businesses. In as much as financial statements are legally required for registered companies, these statements are included in a company\u2019s annual report.<\/p>\n This is a type of financial accounting involved with a firm or a business focusing on corporate transactions involving cash. Any transaction without monetary input cannot be in the statements because this type of accounting records income as they are received. They always credit or debit the cash account based not the transaction made. <\/p>\n In other words, they record revenues when they actually receive the funds and record expenses only when they are paid.<\/p>\n On the 12th of March, a box-producing company received an order from a distributor for 100 sets of boxes, which cost $9000. The distributor paid for the goods on the 31st of March. This means that the company will record the transaction on the 31st because they received the money. Therefore, the company assumes that no transaction was made until the 31st of March.<\/p>\n In this type of financial accounting, a business or firm regards the monetary inflow and outflow, present or expected. In that case, they record all transactions, including debit and credit. They adopt the cash accounting method and go even further to record the whole transaction, irrespective of if the cash is received or not.<\/p>\n Firms or businesses that use this kind of accounting record the transaction as soon as it occurs, unlike cash accounting which records a transaction only after payment.<\/p>\n For instance;<\/strong><\/p>\n A company that uses the accrual method for its financial accounting pays its taxes on the 20th of every month. However, the financial accountant can add the tax while writing a financial statement on the 5th of that same month, even though the tax has not been paid. If they were practicing cash accounting, the tax would only be on the accounting statement on exactly the 20th of every month since that is when it is paid.<\/p>\n There are a series of established accounting principles that guide the whole accounting process. Just like stated above, one principle is GAAP. Moreover, the primary goal of establishing these principles is to provide consistent information to regulators, investors, and probably tax authorities.<\/p>\n Similarly, all financial analysis types give a financial record of a firm.<\/p>\n These financial analysis examples will help you understand calculation statements. It can also serve as a template to write yours. <\/p>\n Importantly, the statement of cash flows contains the inputs and outputs in actual cash within a period of time. Making these financial statements needs financial literacy<\/a> qualifications.<\/p>\n Cash flows; <\/strong>Cash inflow -Cash outflow + Opening balance = Closing balance<\/p>\n On the 1st of March 2018, Brian started a small business with $300 in his account. In the same march, Brian borrowed $700 from his friend Jacob. He also bought new sets of chairs( for business) for $90. <\/p>\n On the 1st of October, Z Factors, a company that produces footwear (small business), had $100 after the production of 60 pairs of shoes. They sold 50 pairs of shoes to Sarah, their distributor, for $4000. Meanwhile, Z Factor paid their tax of $200 on the 21st of October. Also, on the 21st of the same month, they sold 10 pairs of shoes for $800 to Smith on credit. <\/strong><\/p>\n Cash inflow: $4000 (how much they got in cash, not including credit)<\/em>.<\/p>\n Cash outflow: $200 ( money they spent within the month).<\/p>\n Opening balance: $100<\/p>\n Closing balance: $4000- $200 + $100 = $3900<\/strong> ($800 was not included)<\/p>\n Please note:<\/strong> Cash flow statement only considers transactions that involve actual cash, however ignoring all credit and debts that haven’t been paid.<\/p>\n In the example of financial accounting below, you will understand better how to make an income statement. This can also serve as a template to write yours.<\/p>\n Income Bond: Definition and detailed explanation<\/a><\/p>\n Z factors income statement for June<\/strong> 2019<\/strong><\/p>\nHow Financial Accounting works<\/h4>\n
The financial statements can be classified into five kinds of data;<\/h5>\n
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Types of Financial Accounting<\/span><\/h2>\n
#1. Cash Accounting<\/span><\/h3>\n
For instance;<\/h4>\n
#2. Accrual Accounting<\/h3>\n
Financial Accounting Examples<\/h2>\n
Example 1<\/h3>\n
Take a look at Brian’s cash flow statement for the month of March;<\/h4>\n
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Example 2<\/h3>\n
Take a look at Brian’s cash flow statement for the month of October;<\/h4>\n
Example <\/h3>\n