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Encyclopedia > Financial accountancy

Financial accountancy (or financial accounting) is the branch of accountancy concerned with the preparation of financial statements for decision makers, such as stockholders, suppliers, banks, 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. Accountancy (profession) or accounting (methodology) is the measurement, disclosure or provision of assurance about financial information primarily used by managers, investors, tax authorities and other decision makers to make resource allocation decisions within companies, organizations, and public agencies. ... Historical financial statement Financial statements (or financial reports) are formal records of a business financial activities. ... A shareholder or stockholder is an individual or company (including a corporation) that legally owns one or more shares of stock in a joint stock company. ... A supply chain, logistics network, or supply network is a coordinated system of organizations, people, activities, information and resources involved in moving a product or service in physical or virtual manner from supplier to customer. ... Banker redirects here; see wiktionary:banker for more meanings. ... An agency is a department of a local or national government responsible for the oversight and administration of a specific function, such as a customs agency or a space agency. ... In economics, the principal-agent problem treats the difficulties that arise under conditions of incomplete and asymmetric information when a principal hires an agent. ...


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. Managerial accounting provides accounting information to help managers make decisions to manage the business. Management accounting is concerned with the provisions and use of accounting information to managers within organizations, to provide them with the basis in making informed business decisions that would allow them to be better equipped in their management and control functions. ...


Financial accountancy is governed by both local and international accounting standards.

Contents

Basic accounting concepts

Financial accountants produce financial statements based on Generally Accepted Accounting Principles (GAAP) of a respective country. Generally Accepted Accounting Principles (GAAP) is the standard framework of guidelines for financial accounting. ...


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

  • Understanding the fundamental accounting concepts

Graphic definition

The accounting equation (Assets = Liabilities + Owners' Equity) and financial statements are the main topics of financial accounting. In business and accounting an asset is anything owned which can produce future economic benefit, whether in possession or by right to take possession, by a person or a group acting together, e. ... In the most general sense, a liability is anything that is a hinderance, or puts one at a disadvantage. ... Ownership equity, commonly known simply as equity, also risk or liable capital, is a financial term for the difference between a companys assets and liabilities -- that is, the value that accrues to the owners (sole proprietor, partners, or shareholders). ...


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 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. In bookkeeping, the trial balance is a worksheet wherein all the balances of each ledger are entered in two columns, namely debit and credit. ... Double-entry accounting system is the standard practice for recording financial transactions. ... Income statements is a financial statement for companies that indicates how net revenue (money received from the sale of products and services before expenses are taken out, also known as the top line) is transformed into net income (the result after all revenues and expenses have been accounted for, also... In formal bookkeeping and accounting, a balance sheet is a statement of the book value of all of the assets and liabilities (including equity) of a business or other organization or person at a particular date, such as the end of a fiscal year. ...


or

 0 = Dr Assets Cr Owners' Equity Cr Liabilities . _____________________________/____________________________ . . / Cr Retained Earnings (profit) Cr Common Stock  . . _________________/_______________________________ . . . / Dr Expenses Cr Beginning Retained Earnings  . . . Dr Dividends Cr Revenue . . ________________________/ ______________________________________________________/ increased by debits increased by credits 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 

In business and accounting an asset is anything owned which can produce future economic benefit, whether in possession or by right to take possession, by a person or a group acting together, e. ... Ownership equity, commonly known simply as equity, also risk or liable capital, is a financial term for the difference between a companys assets and liabilities -- that is, the value that accrues to the owners (sole proprietor, partners, or shareholders). ... In the most general sense, a liability is anything that is a hinderance, or puts one at a disadvantage. ... In accounting, retained earnings refers to the portion of net income from a period which is retained by the corporation, rather than distributed to its owners. ... Common stock, also referred to as common shares, are, as the name implies, the most usual and commonly held form of stock in a corporation. ... In accounting, an expense is a general term for an outgoing payment made by a business or individual. ... In accounting, retained earnings refers to the portion of net income from a period which is retained by the corporation, rather than distributed to its owners. ... A dividend is the distribution of profits to a companys shareholders. ... Revenue is a U.S. business term for the amount of money that a company earns from its activities in a given period, mostly from sales of products and/or services to customers. ... link title Debit is an accounting and bookkeeping term that comes from the Latin word debere which means to owe. ... Credit as a financial term, used in such terms as credit card, refers to the granting of a loan and the creation of debt. ...

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 Owners' Equity. Some assets of a company, however, cannot be claimed as 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 Assets of a company can be claimed by someone, whether owner or not, so the sum of a company's equity and its liabilities must equal the value of its Assets. Thus the accounting equation describes what portion of a company's assets can be claimed by the owners. Ownership equity, commonly known simply as equity, also risk or liable capital, is a financial term for the difference between a companys assets and liabilities -- that is, the value that accrues to the owners (sole proprietor, partners, or shareholders). ... Ownership equity, commonly known simply as equity, also risk or liable capital, is a financial term for the difference between a companys assets and liabilities -- that is, the value that accrues to the owners (sole proprietor, partners, or shareholders). ... In the most general sense, a liability is anything that is a hindrance, or puts individuals at a disadvantage. ... In business and accounting an asset is anything owned which can produce future economic benefit, whether in possession or by right to take possession, by a person or a group acting together, e. ... Ownership equity, commonly known simply as equity, also risk or liable capital, is a financial term for the difference between a companys assets and liabilities -- that is, the value that accrues to the owners (sole proprietor, partners, or shareholders). ... In the most general sense, a liability is anything that is a hinderance, or puts one at a disadvantage. ... In business and accounting an asset is anything owned which can produce future economic benefit, whether in possession or by right to take possession, by a person or a group acting together, e. ...


Various account types are classified as 'credit' or 'debit' depending on the role they play in the accounting equation. Credit as a financial term, used in such terms as credit card, refers to the granting of a loan and the creation of debt. ... link title Debit is an accounting and bookkeeping term that comes from the Latin word debere which means to owe. ...


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

Chartered Certified Accountant (Designatory letters ACCA or FCCA) is a United Kingdom chartered accounting designation awarded by the Association of Chartered Certified Accountants (ACCA) The term Chartered Certified Accountant was introduced in 1996. ... The Association of Chartered Certified Accountants (ACCA) is a British chartered accountancy body with a global presence that offers the Chartered Certified Accountant (Designatory letters ACCA or FCCA) qualification worldwide. ... Chartered Accountant (CA) is the title of members of a certain professional accountancy associations in the Commonwealth countries and Ireland. ... CA or ca may stand for: C&A stores calcium (Ca): symbol for the chemical element California: State of, United States Canada (ISO country code) Catalan language (ISO 639 alpha-2) Cellular automata Central America Certificate authority Channel America: Defunct US television network Chartered accountant Chemical Abstract Citizens Alliance: Political... Certified Public Accountants (CPAs) are qualified accountants in the United States who have passed the Uniform Certified Public Accountant Examination and have met additional state education and experience requirements for certification as a CPA. In most U.S. states, only CPAs who are licensed are able to provide to the... For other meanings of CPA see CPA (disambiguation) Certified Public Accountants (CPAs) are accounting professionals of the United States who have passed the Uniform CPA exam, which was developed and is maintained by the American Institute of Certified Public Accountants (AICPA), and have subsequently met additional state requirements for licensure... The American Academy of Financial Management, or AAFM as it is known, is a professional association dedicated to the finance sector and finance professionals. ...

See also

An accounting analyst evaluates and interprets public company financial statements. ... Accountancy (British English) or accounting (American English) is the process of maintaining, auditing, and processing financial information for business purposes. ... Audit can refer to: Telecommunication audit Financial audit Performance audit Completion of a course of study for which no assessment is completed or grade awarded; especially audit is awarded to those who have elected not to receive a letter grade for a course in which letter grades typically awarded. ... Management accounting is concerned with the provisions and use of accounting information to managers within organizations, to provide them with the basis in making informed business decisions that would allow them to be better equipped in their management and control functions. ...

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