Financial Accounting

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Financial Accounting

Introduction to Financial Accounting

Financial accounting is the branch of accounting that deals with the creation of financial accounts for decision makers including stockholders, suppliers, banks, workers, government agencies, owners, and other stakeholders. The primary goal of financial accounting is to reduce the principal-agent issue by measuring and monitoring agent performance and communicating the findings to interested parties.

Accounting discipline that views money as a tool for assessing economic success rather than a component of production. It includes the complete system of monitoring and controlling money as it moves in and out of the company as assets and liabilities, as well as income and costs. Financial accounting collects and summarizes financial data in order to create financial reports for the firm’s management, investors, lenders, suppliers, tax authorities, and other stakeholders, such as the balance sheet and income statement.

The accounting conceptual framework

“is designed to determine the nature, subject, purpose and broad content of general financial reports, as well as the qualitative characteristics that financial information must have.” That framework will provide a good basis for the formulation of future accounting standards. The objective of the board of directors is to establish principles-based, internally and internationally consistent standards, and to result in financial reports that provide the information necessary for the investment. credit and similar decisions.


American   Institute of Certified Public Accountants has defined the Financial Accounting as “the art of recording, classifying and summarizing in a significant manner and in terms of money transactions and events which are in part, at least of a financial character, and interpreting the results thereof.”

 American Accounting Association defines accounting as “the process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by users of the information.”


The following are the primary goals of financial accounting:

1. To enable the student to identify and categories things as either current or long-term assets, liabilities, or owner’s equity, and to classify their typical balance position.

2. To develop the student’s ability to establish widely accepted accounting concepts and apply them appropriately to the business structure.

3. To enable the student to define the functions of the income, expense, and drawing accounts, as well as the impact on capital/equity. owner’s

4. To teach the student how to evaluate business transactions utilizing source documents and their impact on the accounting equation, journalize the transactions using various journal formats, and post them to the general and subsidiary ledgers.

5. To teach students how to understand the double-entry accounting system and how to use debit and credit rules when evaluating company transactions.

6. To allow students to complete all tasks of the closing process, including journalizing and posting closing entries, preparing the post-close trial balance, and preparing the necessary financial statements and reports.

7. To teach students how to create bank reconciliations, establish, maintain, and refill petty cash reserves, keep a payroll register, and fill out tax forms.

8. To enable students to set up and maintain accounts for receivables and payables, as well as the associated interest.

9. To teach students how to analyze and evaluate inventory ideas and costing procedures, as well as how to apply these concepts.

10. To teach students how to compute depreciation and how to use suitable accounting principles and procedures for the purchase, depreciation, and disposal of property, plant, and equipment.

Detailed Content Covered in Study Material


  • Introduction
  • Definition
  • Objectives of Financial Accounting
  • Functions of Accounting
  • Users of Accounting
  • Advantages & Limitation of Accounting
  • Book-Keeping
  • Distinction Between Book-Keeping and Accounting
  • Accounting Concepts
  • Accounting Conventions
  • Basic Principles of Accounting
  • Accounting Equation
  • Developing an Accounting Equation


  • Journal – Meaning, Definition
  • Ledger – Meaning, Definition
  • Utility of a Ledger
  • Posting – Meaning and Importance
  • Subsidiary Books
  • Cash Book
  • Purchases book
  • Sales Book
  • Sales returns book or returns inward book
  • Purchase returns or returns outward Book
  • Petty Cash Book
  • Trial Balance – Objectives

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