Ultimate Guide to Financial Accounting (For Beginner)


Financial accounting is one of the essential functions of Financial Management in the Financial Department or Financial Division. Because of its usefulness and necessity,  we can say that this function is one of the strategic functions of the entity.

This function is responsible for preparing financial reports, controlling the financial position and cash flow, and reviewing financial documents ( revenues and expenses).

It also provides strategic financial information for decision making, performing financial analysis, and other functions required by top management. A financial Accountant performs the role and responsibilities of Financial Accounting.

Financial Reporting:

One of the essential Financial Accounting rules is to perform financial reporting to management, the board of directors, regulators, and related authorities regularly or as required.

Usually, the Financial Reports are prepared and reported at the end of the specific period, daily, weekly, monthly, quarterly, annually, or else. Yet, for decision-making, the reports are requested by management as per their requirements.

In general, the following are the Financial Reports provided by Financial Accounting are:

Financial Statements:

  • The Balance Sheet is the entity’s financial report that shows total assets, current assets, fixed assets, total liabilities, current liabilities, long-term liabilities, owners’ equity, and retain earnings at the end of the financial data. Balance sheet or sometimes people called financial position because this report showed the financial position of the entity.
  • Income statements, or sometimes what we call financial performance, show how a financial entity’s performance is. This statement shows the financial transactions of the entity for a period of time. Those transactions, including Revenues that the entity generates, and the cost of goods sold, occur related to revenues, gross profits, operating expenses, operating profits, others’ income, other expenses, interest expenses, tax expenses, and net income for the period it is reporting.
  • The cash flow statement could be reported under different basic. Direct and Indirect. Mostly, this report is prepared on an indirect basis. The report shows three different sections for the indirect method: Operation Activities, Investing Activities, and Financing Activities. Operation Activities are the cash inflow and outflow from the daily operation of the entity. It can be the cash that the entity receives from the customer’s payments and the cash that the entity pays to suppliers. Investing Activities show the long-term financial activities of an entity. For example, the purchase of non-current assets, depreciation, and disposal of non-current assets. All of these things go to investing activities. The last cash flow in the cash flow statement is about financial activities. The financial activities are all the cash inflow and outflow related to financing—for example, loans, selling and purchasing stock, borrowing, dividend payment, or receipt.
  • A statement of change in equity is the statement that shows the total wealth of the company. It showed share values, the number of shares, and types of shares.
  • Noted to Financial Statements is the note to the significant items in the financial statements, including balance sheet, income statement, statement of cash flow, and statement of change in equity.
  • Financial Forecasting: This is one of the most important roles in Financial Accounting done by Financial Accounting. Financial forecasting is a report prepared for annual financial planning or requested by potential suppliers, banks, or creditors for credit assessments.
  • A budgeting Report is a bit different from financial forecasting. Budgeting the financial target that is set by management or board of directors as the key performance indicator.
  • Financial Performance Report is the report that tract the company’s performance again key criteria, market, target, and benchmark again competitors. Such a report is subjective and depends on the key performance indicators that management wants to archive.
  • Financial Statements Analysis: Financial Statements analysis is also one of the most important roles in Financial Accounting. Financial Analysis or Financial Accountant does financial Statements Analysis. The main objective is to assess the significant expenses and revenues or unusual transactions in the entity. This type of report is prepared every month or sometimes as a request by management.
  • Other Financial Reports: Financial Accounting also provide reports or does the other tasks request by management related to Financial information.
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Financial Accounting Vs. Managerial Accounting

Financial Accounting is different from managerial accounting or costing accounting. As described above, financial accounting mainly focuses on financial reporting, financial control, and financial analysis.

However, Managerial accounting focuses on controlling the cost component of products or services. For example, the costing concerns costing reports like variable cost, labor cost, and material cost of products.

I am hoping that this report helps you understand Financial Accounting well.