Financial accounting is basically the field of bookkeeping dealing with the reporting, analysis and preparation of financial accounts of a company. This includes the preparation of official financial statements, reports, schedules and financial reports. This usually takes the form of either an annual report or quarterly report.
It is important to note that every aspect of the functioning of the business is carried out in a systematic way, thus accounting has been termed as a very complicated task. Since there are so many different aspects involved, the whole process has to be done in a systematic manner, which includes all aspects like management and control of the business, financial statement preparation, preparing budget documents and so on. This is done under the supervision of a qualified accountant.
Financial accounting may be divided into two major fields: Internal and External financial. Internal financial accounting deals with the financial statement prepared by the internal accounting department of the company. This includes the budgeting of resources and other financial activities, which have to be made by the management. It also includes preparation of reports about the financial performance of the business, which are then sent to the investors or customers for review and approval.
External financial accounting mainly deals with financial reporting and auditing of the financial information of the company to be sent to the investors or clients. This involves financial reporting of the company in terms of quarterly, monthly, yearly and other general reports that are used for different purposes. The external auditor generally examines the financial information of the company in order to make a report about it.
All financial statements prepared by the company for any of the purposes, whether they are for a general purpose or any special purpose, including internal management planning, are made available to the external accountant and the audit. The auditor then makes a comprehensive report about the financial information of the company, which is then presented to the investors, the creditors and other financial institutions.
The most important thing to be kept in mind while doing financial accounting, is the need to prepare accurate and timely financial reports to the investors. A careful planning and a systematic approach is needed to ensure that the financial statements prepared by the company are correct and accurate. This means that a proper planning is necessary and the proper arrangement made in the computer system of accounts so that there is complete and accurate financial data in the computer and this can be accessed and updated from time to time, which enables the auditors to get access the data in real time.
Financial accounting involves various processes such as preparing financial statements, preparing financial reports, and preparing financial statements in a standardized format and preparing financial reports for presentation to the investors. In case of any discrepancies between the financial data of the company and the accounts or records, corrective action must be taken as soon as possible. There are several steps taken by the accountants, which include the following:
To facilitate the process of corrective actions, there are appropriate procedures that are applied: The company must have a written policy regarding the financial activity, which states clearly who will be responsible for the corrective actions if there is any error in any part of the books, and the policy also explains the procedure for the submission of the correction reports to the shareholders, and to the creditors. This helps in ensuring that there is no delay in reporting of errors and rectifying them.
Companies have to make sure that the books and records of the company are maintained properly. A system for recording the financial transactions of the company is very important. The book keeping of the company must be done manually and properly and there should be no errors in recording the transactions. Such errors in the book keeping, which will affect the accuracy of financial reports will result in a serious financial loss for the company.
There are certain rules and regulations, which are laid down by the SEC in regard to the book keeping and accounts. The book keeping of the company must be in accordance with the SEC regulation for public accounting and auditing of financial activities. The accounting rules of the SEC are meant to help the company in ensuring that the company complies with the laws relating to the recording and submission of the book keeping of financial transactions, and account of financial transactions.
The accounting records are also made available to the investors by the internal control system and they should be available on request, which means that there is a process for getting the information on demand. For getting these records, the company must have a proper system to do so. Also the accounting system for the company must not involve any kind of fraud or deception of any kind, to gain access to the company’s confidential information.