Financial Accounting
The purpose of this page is to outline
the important concepts of financial accounting.
The Role of Financial Accounting
Financial
Accounting involves the accumulation and reporting of accounting information
that is oriented primarily toward external users, such as lenders and investors.
Since the reports are aimed primarily at external users, they must be prepared
according to uniform guidelines, called generally accepted accounting principles
(GAAP). Many organizations have been instrumental in the development of
GAAP. The earliest, and one of the most influential is the American Institute
of Certified Public Accountants (AICPA)
through their Committee on Accounting Procedure and the Accounting Principles
Board. Since 1973, the seven (7) member Financial Accounting Standards
Board (FASB)
has provided oversight for establishment and continuous improvement of
accounting principles. Other important organizations in the development
of GAAP include the Securities and Exchange Commission (SEC)
and
the American Accounting Association (AAA)
Financial
reporting is accomplished by an organization's issuance of four (4) financial
statements with a notes section for additional disclosures not readily
available in the financial statements.
-
Balance Sheet
- Indicates financial solvency at a point in time
-
Income Statement
- Indicates profitability over a period of time
-
Owners' Equity
Statement - Indicates changes in owners' equity over a period of time
-
Cash Flows
Statement - Identifies cash inflows and outflows over a period of time
and beginning and ending balances of cash
Last Updated March
9, 1998 by Robert L. (Bob) Putman