Financial accounting is a branch of accounting that deals with the recording, summarizing, and reporting of financial information within an organization. In other words, financial transactions are recorded, summarised, and presented to the user of the financial information for decision making and other uses.
Recording of financial information
The process of recording financial information includes identification and recording of the financial information in the books of accounts. Certain accounting-related concepts need to be taken into account that includes the Matching concept and accrual concept of the accounting.
Matching concept of financial accounitng
The matching concept is used at the time of recording financial transactions within the accounting system. As per the concept of matching concept, transactions related to period A should be recorded in period A, these transactions can be related to the revenue, expenses, and other financial aspects.
Accrual concept of financial accounting
The accrual concept states that financial transactions should be recorded in a period of occurrence irrespective of the fact that cash is received or paid in that particular period of the transaction.
Summarising of financial information
There are thousands of financial transactions that have been recorded in the books of accounts and these are not such useful for decision making or any other purpose. Hence, their financial transactions need to be summarised to be more useful for decision-making and other purposes.
Process of summarisation
At the period end, we have a pool of financial transactions. These financial transactions are in the form of the ledgers and chart of accounts that were formed at the time of posting financial transactions. Now, final figures from the ledgers are taken into the trial balance that enlists all the balances in their respective chart of accounts.
Once, the trial balance is ready, figures are taken from the trial balance and pasted in the financial statements. Figure by figure posting results in a set of financial statements that are used for decision-making and other purposes.
Reporting in finnacial accounting
Financial information is presented in some pre-agreed format that is used for understanding and decision-making based on the financial information. Different reports are created by taking figures from the trial balance that include a balance sheet, income statement, cash flow, changes in equity, and notes to the accounts.
Preparation of the financial information completes the process of the accounting cycle leading to sound information for the decision making.
Technology and financial information
Different accounting software really helps in the process of the preparation of financial statements. We just need to enter the initial financial transaction in the accounting software and it will complete the rest of the process itself.
Accounting software uses an integrated approach as once they collect the data from your sales, expense, assets, liabilities, and other modules and a got the ability to prepare trial balance and financial statements in just a few clicks.
Fintech really makes the process easy and simplified for accountants and business professionals to prepare the set of financial statements.
