Financial Accounting

Financial Accounting

Length: 1010 words (2.9 double-spaced pages)

Rating: Excellent

Open Document

Essay Preview

More ↓
Accounting - It is the process of identifying, recording and summarizing economic data about the organization and reporting it to decision makers.

Financial Accounting - It serves external decision makers such as Stockholders, suppliers, banks, and government agencies

Management Accounting – It serves internal decision makers, such as top executives, department heads, college deans, and other people at management levels within the organization.

Questions on Financial situation about the company:
A) What is the financial picture of the organization on a given day?
B) How well did the company do during a given time period.

Three statements that are very important for decision makers that are prepared by accountant are:
a) Balance Sheet
b) Income Statement
c) Statement of Cash Flows.

Annual Report – A report prepared by corporate management to be distributed among current investors and future prospects. It contains overview of company along with future goals. It also contains all the information about financial situation of the company.

Form 10K – A document submitted with SEC that contains the financial statements of the corporation.

Balance Sheet = Statement of Financial Position = Financial Situation of a company at a particular instant in time. Balance sheet MUST balance both sides (Assets and Liabilities + Owner Equity). If the balance sheet doesn’t match on both sides, there is a mistake.

Balance Sheet Equation
Assets = Liabilities + Owner’s Equity
Owner’s Equity (OE) = Assets – Liabilities

Another Version-
Assets = Liabilities + Owner’s Equity
Assets = Liabilities + Paid in Capital + Retained Earnings
Assets = Liabilities + Paid in Capital + Revenues (Total Sales) – Expenses (Total Sacrifices)

Assets - Economic Resources that either help future Cash Inflow (Adding) or help reduce outflow of CASH
Liabilities - Economic Obligations to outsiders or claims against its assets by outsiders.

Paying Dividends is not an Expense since paying dividends it the distribution of wealth to its owners.

Owner’s Equity - Owner’s CLAIM on organization’s assets or total assets less total liabilities. Remember ( OE is the owner’s claim that can be made after deducting all the liabilities from the Company’s Assets.

Notes Payable - Promissory note(s) that are evidence of a debt and state the terms of repayment.

Entity - an organization or part of the organization that stands apart from other organizations and individuals as a separate unit.

Transaction - an economic event that that affects the financial situation of the entity an can be recorded reliably by the accountant.

Long-lived Asset – an asset that the company expects to provide service for more than 1 year.

How to Cite this Page

MLA Citation:
"Financial Accounting." 14 Aug 2018

Need Writing Help?

Get feedback on grammar, clarity, concision and logic instantly.

Check your paper »

Financial and Managerial Accounting: What's The Difference? Essay

- Financial and Managerial Accounting: What's The Difference. Whether it is a sole proprietorship, partnership, corporation, or a limited liability company, all businesses survive on the buying/selling of goods and services for cash or credit. They may buy land and build office complexes, stores, or factories. They may buy supplies, equipment, merchandise to sell, and/or the raw materials required to manufacture goods. They hire employees, pay salaries and benefits. All of these "business" activities need to be measured, analyzed, and recorded....   [tags: Financial Managerial Accounting Compare contrast]

Research Papers
1929 words (5.5 pages)

The Financial Accounting Standards Board (FASB) Essay

- To help accounting professionals easily navigate through 50-plus years of unorganized US generally accepted accounting principles (GAAP) and standards the Trustees of the Financial Accounting Foundation approved the Financial Accounting Standards Board (FASB) Accounting Standards Codification (Codification.) By codifying authoritative US GAAP, FASB will provide users with real-time and accurate information in one location. Concurrently, FASB developed the FASB Codification Research System; a web-based system allowing registered users to electronically research accounting issues....   [tags: Accounting]

Research Papers
946 words (2.7 pages)

Financial Accounting Essay

- The accounting system we use today started in Venice in renaissance period over 520 years ago. The trade business increased hugely during this time and all the financial recordings had to be written down to help people see how their business is doing. During that time in 1494 the first book about was published in accounting by Luca Paciolli and was called “The Collected Knowledge of Arithmetic, Geometry, Proportion and Proportionality”. He was called “The father of Accounting” and most of his described principles have been used up until this day....   [tags: Accounting]

Research Papers
1499 words (4.3 pages)

Mangerial And Financial Accounting Report Essay

- Managerial and Financial Accounting Report The role of managerial accounting is increasing. These managers have to be able to increase effectively the involvement and size of organizations. These business managers also have to be aware of the rapid growth and enactment of technology. Managers also have to be familiar with the regulatory environment, be able to contend successfully globally and have an increase importance on excellence. When examining the major differences between financial and managerial accounting, we find that with financial accounting the information is reported in statements....   [tags: Business Accounting]

Free Essays
1129 words (3.2 pages)

The Role of Financial Accounting in Business Essay

- This paper is meant to give an informative view on how financial accounting is used to help small and large businesses make positive and safe financial decisions. It is designed to help small business owners without a vast knowledge or understanding of accounting or of financial reports achieves maximum growth. We will examine the importance of financial reports as well as being able to account for a company’s assets and spending. Through proper accounting and reporting companies have a better way of assimilating what areas can be improved by comparing the reports of prior years and evaluating the differences in what was done then and now....   [tags: Business Management Accounting]

Free Essays
718 words (2.1 pages)

Financial Accounting: Essay

- Introduction Financial accounting that is about reporting and summarizing the transactions of business and provide an accurate financial reports or financial statements such comprehensive income and finacial position (Averkamp, 2014). However, if investing in a business and want to acquire more profit, the financial statemnet of company is must be analysed before taking a decision. This essay will explains that financial statements between two companies about four years comprehensive income statements and four years statements of financial position....   [tags: comprehensive income and finacial position]

Research Papers
1001 words (2.9 pages)

Essay on Financial Accounting

- Accounting - It is the process of identifying, recording and summarizing economic data about the organization and reporting it to decision makers. Financial Accounting - It serves external decision makers such as Stockholders, suppliers, banks, and government agencies Management Accounting – It serves internal decision makers, such as top executives, department heads, college deans, and other people at management levels within the organization. Questions on Financial situation about the company: A) What is the financial picture of the organization on a given day....   [tags: Business Accounting]

Free Essays
1010 words (2.9 pages)

Essay on Financial Accounting

- Just Data 2-1.A. Given: A=$95,000; L=$40,000 OE = 95,000 - $40,000 OE = $55,000 2-1 B. Given: A = $65,000; OE = $40,000 L = $65,000 - $40,000 L = $25,000 2-1 C. Given: Current Assets = $25,000; L = $40,000; OE = $55,000 Non-Current Assets = $95,000 - $25,000 Non-Current Assets = $70,000 2-1 D. Given: Current Ratio = 2.2:1; Current Asset = $33,000, Non-current Asset = $55,000; Liabilities = $15,000 Current Liabilities = Current Assets / Ratio Current Liabilities = $33,000/2.2 Current Liabilities = $15,000 OE = Total Assets - Total Liabilities OE = $88,000 - $15,000 OE = $73,000 2-1 E....   [tags: Business Accounting]

Free Essays
771 words (2.2 pages)

Essay on Financial Accounting

- Financial Accounting Companies operate to achieve varies goals. They may be interested in providing a healthy work environment for their employees, in reaching a high level of control, or making contributions to civic and social organization and activities. However, to meet these goals, a company must first achieve its two primary objectives: earning a satisfactory profit and remaining solvent. If a company failed to meet either of these objectives, it will not be able to achieve its various goals and will not be able to survive in the long run....   [tags: Papers]

Research Papers
936 words (2.7 pages)

Financial Accounting Essay

- Financial Accounting Financial accounting or ‘book-keeping’ is the process of recording financial transactions from the day-to-day operation of a business. The sale of goods to a customer and the subsequent settlement of the debt are two examples of financial transactions. Sales Accounting When credit sales are made to customers, a record needs to be kept of amounts owing and paid. Payment is normally requested with an invoice. An invoice usually gives details of goods supplied, quantities, prices and VAT....   [tags: Business and Management Studies:]

Research Papers
1021 words (2.9 pages)

Inventory – Goods held by the company for the purpose of Sale to Customers.
Open Account – Buying or Selling on Credit, usually by “authorized signature” of the buyer.

Account Payable – A liability that results from the purchase of goods or services on OPEN ACCOUNT. This means that A/P is used only when the goods or services are bought on Credit and not against CASH.

Compound Entry – An entry that impacts more than one account on Balance Sheet. e.g. a transaction impacting CASH Bal, Asset, and A/P in one transaction on balance sheet.
Creditor – A person or entity to whom a company owes money.

Types of Corporation
A) Sole Proprietor – A business with a single owner. In this case the person who is running the business is also liable personally for all the business liabilities.
B) Partnership – A business operated by >= 2 individuals who act as co-owners.
C) Corporation – An entity created under State Laws that has one or more owners who have very limited liability.
Types of Ownership
A) Privately Owned – A corporation owed by an individual, a group of partners or a small family, in which shares are not publicly sold.
B) Publicly Owned – A corporation that sells its shares of ownership to general public.

Revenue – Money Earned by Selling Goods or Services to Customers.
COGS – Cost of Good Sales or COS = Cost to the corporation for the item it has sold.



Par Value – The nominal value amount printed on Stock Certificates
Paid-in Capital (PIC) in excess of par-value (Additional paid-in capital) – When issuing stock, the difference between the total amount that company receives for the stock and the Par Value
Paid-in Capital – The total cash investment in a corporation by its owners both at and subsequent to the inception of its business.
Common Stock – par value of the stock purchased by common shareholders of a corporation.

Board of Directors – A body of individuals selected by common shareholders to monitor manager’s performance on shareholders’ behalf.

(Elect) (Appoint)
Stock Holders --------------( Board of Directors -------------------( Managers
CEO – Top manager in an Organization

Auditor – A person who examines the information used by managers to prepare the financial statements and attests to the credibility of those statements.
Audit – An examination of the company’s transactions and the resulting financial statements.
Auditor’s opinion is always considered as independent opinion.
Public Accountants – Accountants who work for the general public and charge a nominal fee for their services.
Private Accountants – Individuals who work for government such as IRS, businesses, or other Not for Profit organizations.

Accounting Standards and Auditing Regulations

1) GAAP – Generally Accepted Accounting Principles – This term applies to all broad concepts and detailed practices to be followed in preparing and distributing financial statements. It includes all the conventions, rules, and procedures that together comprise accepted accounting practice.
2) FASB – Financial Accounting Standards Board – The private sector body that is responsible for establishing GAAP in the United States.
3) SEC – The ultimate government agency charged by the US Congress to implement GAAP on all companies whose shares are traded in general public.
4) IASB - International Accounting Standards Board – An international body established to develop in the public interest, a single set of high-quality, understandable, and enforceable global accounting standards
5) AICPA - American Institute of Certified Public Accountants – A Professional association in the private sector that regulates the quality of the public accounting profession.
6) Sarbanes-Oxley Act – A US Law passed by Congress in 2002 that gave the Govt a larger role in regulating the auditing profession.
Return to