Financial Accounting

Financial accounting is the area of accounting the purpose of which is to prepare financial statements and provide them to different users for decision making purposes.

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Information in the financial reports must be accurate and provided on time. Also financial reports must be compliant with certain requirements, i.e. have standard widely accepted form.

Users of the information provided by financial accounting can be outside (creditors, shareholders, tax authorities) and inside (employees, managers).

Fairness and consistency of the financial reports is ensured by widely accepted accounting standards - called Generally Accepted Accounting Principles. They are applied in order to ensure financial accounting information complies with the same requirements and meets same criteria which ensure reliability and comparability.

 

Financial Accounting

There are four financial statements which must be prepared by the entity:

  • Balance Sheet

  • Income Statement

  • Cash Flow Statement

  • Statement of Owners' Equity.

Also explanatory notes are attached to these financial statements to explain accounting policies applied and major items presented in these statements.

Financial accounting must ensure that financial statements are prepared in accordance with fundamental accounting assumptions and conventions:

Fair presentation / Going concern / Accruals / Consistency / Prudence / Materiality / Substance over form / Relevance /Reliability / Completeness / Comparability / Understandability

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