Financial accounting is the branch of accounting that is primarily concerned with classifying, measuring, and recording the transactions of a business. At the conclusion of an accounting period (usually a year but sometimes less), a profit and loss account and a balance sheet are prepared to reflect the performance and position of the business.
Financial accounting is primarily concerned with providing a true and fair view of the activities of a business to parties external to it. In order to ensure that this is done properly, considerable attention must be paid to accounting concepts and to any requirements of legislation, accounting standards, and (where they are appropriate) the regulations of the stock exchange.
Today, financial accounting can be separated into a number of specific activities, such as:
- Conducting audits;
- Bookkeeping, and
Unlike their CPA counterparts, financial accountants need not be qualified, in that they need not belong to an accountancy body; however, the majority of those working in public practice will be (Hussey, 1999).
According to Louis Lowenstein (2002), financial accounting has but one straightforward goal: "To give investors and other outsiders an honest report on a company's performance and management's stewardship. Accurate accounting ("transparency") is something that Americans preach to other nations as an essential precondition for successful capitalism" (Lowenstein, 2002, p. 19).