Financial accountancy 465334 225466399 2008-07-13T21:04:59Z 24.4.184.169 {{Unreferenced|date=October 2007}} {{Corporate finance}} '''Financial accountancy''' (or '''financial accounting''') is the field of [[accountancy]] concerned with the preparation of [[financial statements]] for decision makers, such as [[Shareholder|stockholder]]s, [[vendor (supply chain)|supplier]]s, [[bank]]s, employees, [[government agencies]], owners, and other stakeholders. The fundamental need for financial accounting is to reduce [[principal-agent problem]] by measuring and monitoring agents' performance and reporting the results to interested users. Financial accountancy is used to prepare accounting information for people outside the organization or not involved in the day to day running of the company. [[Management accounting|Managerial accounting]] provides accounting information to help managers make decisions to manage the business. In short, Financial Accounting is the process of summarizing financial data taken from an organization's accounting records and publishing in the form of annual (or more frequent) reports for the benefit of people outside the organization. Financial accountancy is governed by both local and international accounting standards. == Basic accounting concepts== Financial accountants produce financial statements based on Generally Accepted Accounting Principles ([[GAAP]]) of a respective country. Financial accounting serves following purposes: * producing general purpose financial statements * provision of information used by management of a business entity for decision making, planning and performance evaluation * for meeting regulatory requirements ====FRS 5 & SSAP 2 & fundamental accounting concepts==== * [http://www.accaglobal.com/students/publications/finance_matters/archive/2000/43/15563 Understanding the fundamental accounting concepts] == Graphic definition == The [[accounting equation]] ([[Asset]]s = [[Liabilities]] + [[Ownership equity|Owners' Equity]]) and financial statements are the main topics of financial accounting. The [[trial balance]] which is usually prepared using the [[Double-entry accounting system]] forms the basis for preparing the financial statements. All the figures in the trial balance are rearranged to prepare a [[income statement|profit & loss statement]] and [[balance sheet]]. There are certain accounting standards that determine the format for these accounts (SSAP, FRS, IFS). The financial statements will display the income and expenditure for the company and a summary of the assets, liabilities, and shareholders or owners’ equity of the company on the date the accounts were prepared to. Assets, Expenses, and Withdrawals have normal debit balances (when you debit these types of accounts you add to them)...remember the word AWED which represents the first letter of each type of account. Liabilities, Revenues, and Capital have normal credit balances (when you credit these you add to them). or 0 = Dr [[Asset]]s Cr [[Ownership equity|Owners' Equity]] Cr [[Liabilities]] . _____________________________/\____________________________ . . / Cr [[Retained Earnings]] (profit) Cr [[Common Stock]] \ . . _________________/\_______________________________ Cr [[Revenue]] . . \________________________/ \______________________________________________________/ increased by [[debit]]s increased by [[credit (finance)|credit]]s Crediting a credit Thus -------------------------> account increases its absolute value (balance) Debiting a debit Debiting a credit Thus -------------------------> account decreases its absolute value (balance) Crediting a debit When you do the same thing to an account as its normal balance it increases; when you do the opposite, it will decrease. Much like signs in math: two positive numbers are added and two negative numbers are also added. It is only when you have one positive and one negative (opposites) that you will subtract. == Meaning of the accounting equation == The value of a company can be understood simply as the useful assets that ownership of a company entitles one to claim. This value is known as [[Ownership equity|Owners' Equity]]. Some assets of a company, however, cannot be claimed as [[Ownership equity|equity]] by the owners of a company because other people have legal claim to them - for example if the company has borrowed money from the bank. The value of a resource claimable by a non-owner is called a [[liability]]. All of the [[Asset]]s of a company can be claimed by someone, whether owner or not, so the sum of a company's [[Ownership equity|equity]] and its [[liabilities]] must equal the value of its [[Asset]]s. Thus the accounting equation describes what portion of a company's assets can be claimed by the owners. Various account types are classified as '[[credit (finance)|credit]]' or '[[debit]]' depending on the role they play in the accounting equation. Assets = Liabilities + Equity '''''or''''' Assets - Liabilities - Equity = 0 Another way of stating it is: Equity = Assets - Liabilities which can be interpreted as: "Equity is what is left if all assets have been sold and all liabilities have been paid". ==Related qualification== * There are several related professional qualifications in the field of financial accountancy including: ** Qualified Accountant qualifications ('''[[Chartered Certified Accountant]]''' '''([[Association of Chartered Certified Accountants|ACCA]])''', '''[[Chartered Accountant]]''' '''([[Chartered accountant|CA]])''' and '''[[Certified Public Accountant]]''' '''([[CPA]])''') ** CCA Chartered Cost Accountant (cost control) designation offered by the [[American Academy of Financial Management]] ==See also== *[[Accounting analyst]] *[[Cost and management accountant]] *[[Accounting technician]] *[[Bookkeeper]] *[[Auditor]] *[[Forensic accountant]] *[[Management accounting]] (the other main division of accounting) ==External links== * [http://www.iasb.org International Accounting Standards Board] * [http://www.accaglobal.com/ Official website of the ACCA] * [http://www.icaew.co.uk Institute of Chartered Accountants] * [http://www.financialanalyst.org American Academy of Financial Management Board of Standards] * [http://www.fasb.org Financial Accounting Standards Board] * [http://www.aicpa.org American Institute of Certified Public Accountants] [[Category:Financial accounting]] [[Category:Generally Accepted Accounting Principles]] [[Category:Types of accounting]] [[ar:محاسبة مالية]] [[de:Finanzbuchhaltung]] [[el:Χρηματοοικονομική Λογιστική]] [[fr:Comptabilité générale]] [[id:Akuntansi keuangan]] [[ja:財務会計]] [[pl:Rachunkowość finansowa]] [[pt:Contabilidade financeira]] [[zh:财务会计]] [[ko:재무회계]]