Financial Accounting

Accounting:
– Accounting is the branch of social sciences.
– Accounting is the language of business.

Types of Accounting

1. Financial Accounting
2. Cost Accounting
3. Management Accounting

Financial Accounting:

“The art of presenting the financial position and financial performance of a business by presenting financial statements to its users is financial accounting.”

“Financial Accounting is the process of recording, classifying, summarizing and reporting the results of business transactions to the decision makers for making business decisions.”

Financial Accounting defined by FASB (Financial Accounting Standard Board); “Financial Accounting is a service activity. The basic purpose is to provide qualitative and quantitative information to the decision makers. The information is intended to be useful for quality decision making.”

Business Transaction:
Any financial event occurs in the business that immediately effect the financial position (Balance Sheet) of the business is called a business transaction.

Financial Statements:
Balance Sheet
Income Statement or Trading and Profit and Loss Account
Statement of Cash flows
Statement of Owner’s Equity or Statement of Retained Earnings

1. Income Statement:
The statement that measures the profit of a company at the end of an accounting period is called Income statement.

2. Balance Sheet:
Statement that measures the financial position of the business at any point of time is Balance sheet.

3. Statement of Cash Flows:
The statement that measures the cash position of the business, either cash inflow or outflow at the end of an accounting period.

4. Statement of Owner’s Equity:
The statement that measures owner’s claim over business assets at the end of an accounting period is called statement of owner’s equity or statement of retained earnings.