Financial accounting

 

Financial accounting differs from managerial accounting because the information and analyses are for people outside of the organization. This information goes to owners and prospective owners, creditors and lenders, employee unions customers, suppliers, governmental units, and the general public. These external users are interested in the organization�s profits, its ability to pay its bills, and other financial information. Much of the information is contained in the annual report, a yearly statement of the financial condition and progress of the organization. Various quarterly reports keep the users more current.

Bookkeeping involves the recording of business transactions. It is a rather mechanical process and does not demand the financial training and insights of accounting. Bookkeeping is an important part of accounting, but accounting goes far beyond the mere recording of data. Accountants classify and summarize the data provided by bookkeepers. They interpret the data and report them to management. They also suggest strategies for improving the financial condition and progress of the firm. Accountants are especially valuable for income tax preparation and financial analysis.

Accounting involves the gathering and recording of transactions (for example, the sale of merchandise, the payment of a bill, or the receipt of merchandise into storage), and the periodic preparation of financial statements that summarize those transactions.

Auditing, the oldest area of practice, remains the largest for many firms. An audit is a CPA`s (Certified Public Accountants) examination of a company�s financial statements in order to express an opinion about the fairness of those statements in accordance with generally accepted accounting principles. When a company wants to borrow funds from a bank or have its stock listed on a stock exchange, it must present statements regarding its financial affairs. Because these statements are prepared by independent auditors, those interested in the information know it has been presented fairly and accurately.