Financial accounting can be a good career choice for many. Even if one does not wish to become an accountant, knowing can be crucial. Most investors, although not financial accountants, use financial accounting for decision-making. Over time, the demand for this knowledge has increased substantially. While other areas of accounting also exist, like cost accounting, etc. However, financial accounting is the most relevant for most individuals.
Financial accounting concerns the use of financial statements for decision-making. While most people can enter the field with relative ease, it may have more challenging aspects. The rudimentary level of entry is becoming an accountant or bookkeeper. However, students can also obtain a license or membership from a professional accounting body. The latter option provides more opportunities but may also come with higher challenges.
Financial accounting is a part of a whole package that most universities teach, known as accounting. Once someone studies this subject, they can have a clear career path. However, some candidates may hesitate before choosing it due to its connection with numbers. Most people believe that they must know mathematics to study financial accounting. Before discussing that, however, it is crucial to understand what financial accounting is.
What is Financial Accounting?
Financial accounting involves recording, summarizing, analyzing, and reporting business transactions. The objective of this process is to produce financial statements that stakeholders can use. Usually, companies perform this process through accounting software. Once they enter a business transaction, the software handles the remaining steps. Nonetheless, it is crucial to understand how it works as it can be helpful.
Financial accounting starts with a business transaction. This transaction may come from any source. Usually, companies indulge in contracts and agreements that result in financial transactions. Similarly, these transactions also have a monetary value attached to them. Once incurred, companies must record them in their financial systems. It is the first step involved in the financial accounting process.
Once companies record the business transaction, it goes through the accounting system. In the past, it entered the books of prime entry. Companies then transferred the collective amounts for those areas to the general ledger. The general ledger is the first step to record financial transactions in most software. However, it also includes journal entries for each transaction.
Once companies prepare the general ledger, they summarize it. This process involves calculating the balance on each account. Then, they transfer that amount to the trial balance. This record includes a list of various account balances. Once companies prepare the trial balance, they may adjust it. Once finalized, they use the information to prepare the financial statements.
Overall, financial accounting seeks to achieve the preparation of financial statements. These include the balance sheet, income statement, cash flow statement, and statement of changes in equity. While this process may involve various amounts and figures, it may also require some math knowledge. For some people, it may create a challenge when choosing financial accounting.
Do you need to be good at math to study financial accounting?
Most financial accounting enthusiasts may wonder if their average or below math knowledge may stop them from studying in the field. Financial accounting requires the use of mathematics to perform primary operations. In most cases, it involves rudimentary arithmetical knowledge. In some circumstances, candidates must also understand some complex mathematical concepts.
In most cases, financial accounting requires some fundamental math knowledge. If those studying the field understand the elemental operators, they can prosper in the field. These operators include addition, subtraction, multiplication, and division. However, financial accounting does not require them to grasp more complex topics. If they understand these operators, they can survive in the field.
Similarly, students must also understand some fundamental algebra concepts. However, it does not require more complex operations. Usually, they must know how to rearrange equations to derive an unknown amount. Students must also understand how to calculate percentages and ratios. This knowledge is crucial in financial accounting. Most of these are primary operations in mathematics, which most people understand.
While math knowledge is critical, most accounting software takes care of it. In modern accounting practices, therefore, accountants can take math as optional. On top of that, most basic calculators also help in the operations necessary in financial accounting. Despite that, accountants must understand how these calculations occur. Without this knowledge, they may not have sufficient knowledge to catch or rectify errors.
Overall, math is one of the skills required to study accounting. However, it is not a critical deciding factor when choosing the field. While it can enhance an accountant’s work, it does not dictate it. In contrast, other more crucial skills can benefit an accountant’s work. In most cases, these skills are more critical than mathematics in dictating performance in financial accounting.
What are the skills required for financial accounting?
While mathematics is an optional skill for accountants, several more important ones also exist. These skills can enhance the work that accountants put into their field. On top of that, they can also expedite their career path and help them move up the ranks quickly. Most accountants may neglect them, which can be detrimental to their work. Overall, some of the skills required for financial accounting are below.
Accounting standards knowledge
Most of the work done in financial accounting concerns using accounting standards. These standards may come from different sources. For example, they relate to the IFRS or the GAAP, relevant in various areas. In financial accounting, knowing these standards is highly crucial. Without these, accountants cannot survive in the financial accounting field.
Apart from accounting standards, financial accounting may also concern following regulatory standards. These standards usually come from the jurisdiction in which a company operates. In most cases, it relates to the market where a company offers its services. Understanding and complying with regulatory standards is highly crucial for companies. It falls under financial accounting and, thus, concerns financial accountants.
General business knowledge
Most modern-day accountants perform more functions than bookkeeping or accounting only. They also overlook other areas that are crucial to a company’s performance. For potential growth, they must focus on those areas as well. Therefore, financial accounting requires accountants to have general business knowledge. With this knowledge, accountants can enhance the service provided in all critical areas.
Understanding financial jargon
Financial accounting involves various complex and complicated topics. For most accountants, the knowledge of financial jargon is crucial in helping them survive in the field. On top of that, they must also understand those concepts to provide better services. Even outside the field, financial jargon can be beneficial in making investing decisions. For accountants, however, it is more crucial.
Most modern accountants interact with accounting software. As mentioned above, this software usually takes care of most of the steps involved in financial accounting. In this context, the accountant only operates and enters information into it. Therefore, financial accounts must be proficient in the use of the software. With standards knowledge, this proficiency can help them achieve significantly better results.
Financial accounting involves recording, summarizing, analyzing, and reporting business transactions. This process may require accountants to have some math knowledge. However, it is not crucial. In most cases, accountants can get away without any complex math knowledge. Nonetheless, they may need other skills to prosper in the financial accounting field. Most accounting courses should help accountants develop them.